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What is the Franchising Code of Conduct?

Sarah Stowe

Good faith is at the heart of the Franchising Code of Conduct. Image: bahasacallcenter.comThe franchise sector is highly regulated in Australia, and at the foundation of this governance is the Franchising Code of Conduct.

It governs the ongoing relationship between the franchisee investing in the business, and the franchisor, who runs the franchise system.

The Australian Competition and Consumer Commission has regulated the franchise sector since 1998; regular updates have taken place over the years with the most recent changes an overhaul of the Code with the new regulation becaming law in January 2015.

The new Code has introduced an obligation under the Code for both the franchisee and the franchisor to act in good faith in their joint dealings.

Financial penalties and infringement notices have been included for serious breaches of the Code.

Any franchise buyer must now receive from the franchisor a short information sheet which highlights the benefits and disadvantages of a franchise.

The new Code requires greater financial transparency from franchisors handling marketing and advertising funds.

The Code has brought in an extra requirement for clarity over franchisor/franchisee e-retailing.

Franchisors are prohibited from putting substantial capital expenditure demands on to franchisees, with a few exceptions.

It’s important for potential franchisees to carefully read the disclosure document as this will outline any expenses the franchisor may require you to spend.

3 things the franchisor can’t do

The franchisor cannot:

  • ask a prospective franchisee to sign a document waiving any verbal or written representations made, or releasing the franchisor from liability
  • take action on a dispute in a State or Territory different from the franchisee’s base
  • ask franchisees to pay the franchisor’s costs relating to a dispute settlement

Alleged breaches of the Franchising Code, or the Competition and Consumer Act 2010, can be investigated by the ACCC, which has the power to take enforcement action if that is appropriate. This does not include investigating disputes concerning just a contractual issue.

The ACCC has compiled a Franchisee Manual to help explain rights and responsibilities.

Want to read the Code in full? Click here.