Franchising Code – what you need to know
The new Franchising Code of Conduct came into effect at the start of this year, with implications for petroleum and convenience store operators, retailers, franchisees and franchisors.
In this article, Peter van Rompaey, Partner with HWL Ebsworth Lawyers explains what you need to know about the new code.
The Franchising Code of Conduct follows the Competition and Consumer Amendment (Industry Code-Penalties) Act 2014, which gave the ACCC powers to issue penalties and infringement notices for those who contravened an industry code.
It is of interest to petroleum distributors and resellers, mainly because their longstanding arrangements may now be considered franchise agreements under the new Code.
Some key features include:
- Both franchisor and franchisor have an express obligation to act in good faith in pre-contractual negotiations as well as contractual dealing.
- A new form of disclosure document that must be updated each year – and within four months after the end of the franchisor’s financial year. The only exemption is if the franchisor had no – or only 1 – franchise agreement during the financial year, and has no plans for another agreement the following year.
- The ACCC now has the power to impose a penalty of up to $51,000 for breaching certain provisions of the code, or to use an infringement notice regime to fine a corporation $8500 or an individual $1700.
- Limits franchisors from imposing significant capital expenditure on the franchisee-specific circumstances now apply.
- Increasing the transparency of marketing and advertising by for example, requiring money for these functions to be in a separate bank account.
- Franchisors must provide prospective franchisees with a short information sheet outlining the risks and rewards of franchising.
There are also a number of new obligations which will regulate conduct more than ever within a franchise system, for example, regarding the ability to enforce express restraint of trade provisions and the relationship between master franchisor and sub-franchisee.
Some franchisors can rely on the transitional provisions which (depending on their financial year end) will allow them to complete their compliance update to their disclosure document by 31 October 2015- however specific advice should be sought to verify this applies to you. There are also a small number of provisions that will not apply to an agreement that started before the new Code.
What you should do now.
The first thing you need to do is take out your franchising agreement and disclosure document and give them a thorough review to make sure they comply with the new Code. In particular, disclosure documents will need to be updated so that they are in a compliant template.
Check things such as the grant, renewal, transfer, variation, breach and termination of franchise agreements, as well as new disclosure requirements.
You should also make sure everyone in the business side of the franchise understands their obligations. The new Code will mean the conduct of a franchisor (and their representatives) or franchisee will be under the spotlight.
With greater penalties and fines than before, compliance is more important than it has ever been.
Read the full Code and explanations on the ACCC website.
HWL Ebsworth is an integrated full service national commercial law firm that offers advice on all disciplines relevant to retailing and franchising.