The Franchising Code of Conduct (the Code) is a legally binding document that regulates the relationship between franchisors and franchisees in Australia. Compliance with the Code is mandatory for all franchisors, and failure to adhere to its provisions can result in penalties under the Competition and Consumer Act 2010 (Cth).
The Code covers a wide range of areas, including disclosure obligations, franchise agreements, cooling-off periods, and dispute resolution. Below, we’ll break down the key elements of the Code and explain how they apply to your franchise system.
Franchise Agreement Requirements
The franchise agreement is the core document that outlines the relationship between franchisor and franchisee. It sets out the rights and obligations of both parties and must comply with the provisions of the Franchising Code of Conduct.
Key components of the franchise agreement include:
- Fees and Payments: The franchise agreement must clearly state the initial franchise fee, ongoing payments, marketing contributions, and any other fees payable by the franchisee.
- Duration and Renewal: The agreement must specify the duration of the franchise and the terms for renewing or extending the agreement.
- Franchisee Obligations: These include adherence to the franchisor’s business model, operational procedures, and branding guidelines.
- Franchisor Support: The agreement should outline the training, marketing support, and ongoing assistance provided by the franchisor.
- Termination: The terms under which the franchise agreement can be terminated by either party must be clearly stated.
It’s important to note that franchise agreements can vary significantly depending on the nature of the business, so franchisors should work closely with their legal advisors to ensure that their agreements comply with both the Code and Australian contract law.
Disclosure Obligations
One of the most important elements of the Franchising Code of Conduct is the disclosure obligations imposed on franchisors. Before entering into a franchise agreement, franchisors must provide prospective franchisees with a Disclosure Document that contains critical information about the franchise system. This document ensures that franchisees are fully informed about the business they are investing in.
Key Information in the Disclosure Document:
- Financial Information: Franchisors must provide detailed financial statements and information about the costs associated with running the franchise.
- Business History: The document must include information about the franchisor’s business experience, including any past litigation or bankruptcy proceedings.
- Franchisee Obligations: The document should outline the franchisee’s responsibilities, including the costs of purchasing supplies, maintaining the franchise location, and adhering to the franchise system.
The Disclosure Document must be updated annually and provided to prospective franchisees at least 14 days before the franchise agreement is signed. Franchisees also have the right to request a copy of the Disclosure Document at any time, and franchisors must comply with this request within 14 days.
Key Facts Sheet and Information Statement
In addition to the Disclosure Document, franchisors must provide prospective franchisees with a Key Facts Sheet and an Information Statement. The Key Facts Sheet provides a high-level summary of the franchise, while the Information Statement highlights the risks and rewards of investing in a franchise.
These documents must be provided to franchisees early in the process, allowing them ample time to consider the investment before signing the franchise agreement.
Cooling-Off Period
The Code grants franchisees a 14-day cooling-off period after signing the franchise agreement. During this time, the franchisee can terminate the agreement without penalty, and the franchisor must refund any payments made by the franchisee, minus reasonable expenses. This cooling-off period helps protect franchisees from making impulsive or ill-informed decisions and ensures that they have the opportunity to fully evaluate the franchise before committing.
Franchise Disclosure Register
The Franchise Disclosure Register is a publicly accessible database that provides information about franchisors and their franchise systems. Franchisors are required to maintain a profile on the register and upload their Disclosure Document and other key information annually. This register helps potential franchisees make informed decisions by giving them access to information about the franchisors they are considering working with.
Dispute Resolution
The Franchising Code of Conduct encourages franchisors and franchisees to resolve disputes through mediation. If a dispute arises, either party can initiate mediation, and both parties must participate in good faith. If mediation fails to resolve the issue, the parties may pursue legal action through the courts. who will contribute positively to your franchise network.
