Macrossans Lawyers Brisbane law firm

Significant changes have been made to the Franchising Code of Conduct relating to the provision of information by franchisors.  The changes came into effect from March 2008. These amendments aim to simplify and increase the appropriateness of disclosure to existing and prospective franchisees.  In addition the amendments give the Code more enforcement powers.  

Whilst the most recognised franchises are fast food chains such as McDonalds, KFC and Hungry Jacks a franchise is not limited to one particular industry. The word franchise is concerned with a method of doing business or by definition franchises are saleable commodities passing on the reputable art of doing business from one person to another for a prescribed fee.  The system has now been adopted by several service industries and by organisations such as Bank of Queensland, Crazy Johns and Car Lovers.

Franchising became popular in Australia during the 1980s and whilst generally the franchising method was trusted there had been much adverse publicity concerning bad experiences with the system. As a result in 1997 the Reid Committee established the grounding legal infrastructure the Franchise Code of Conduct 1998 (the Code), within which franchises must operate. The Code forms part of the Trade Practices Act and governs the relationship between franchisors and franchisees in relation to:

• the disclosure obligations of franchisors to franchisees;
• the conditions of a franchise agreement; and
• the resolution of disputes between franchisors and franchisees.

In the past ten years the Code has been amended several times to cope with the changing business environment.  On 1 March 2008 the most recent changes came into effect.  In summary the amendments include:

1. Widening of the scope of the definitions, updating the legislative references to the Corporations Act 2001 and deleting redundant definitions which result in the Code being enforceable in a greater number of circumstances;
2. Abolishing the exemptions previously offered to foreign franchisors who must now supply disclosure documents to Australian master franchisees. Subfranchisees must now be supplied with disclosure documents covering the master franchisee and subfranchisee relationship;
3. Changing to the way disclosure is made, for example:
• Granting the franchisor an extra month to update its financial disclosure documents
• Requiring that franchise businesses with expected turnover of $50,000.00 per annum follow the Annexure 1 long form disclosure; whereas previously short form disclosure was possible;  
• Requiring that a disclosure document be given at renewal, extension and on any extension of the scope of the franchise;
• Requiring that the contact details for franchisees that have left the franchise system in the previous three financial years be made available to prospective franchisees;
• Requiring a franchisor provide details of suppliers and any rebates for supply to a franchisee;
• Requiring that the franchise agreement be supplied in the form it is to be executed in at the same time as the disclosure documents; .
• Requiring that franchisors disclose the history of any previous franchises operated in that territory;
• Requiring that details of any proceedings commenced against a director be disclosed as well as details of any orders made for loss or damages under the Trade Practices Act
• Requiring that all related agreements, for example leases and rental agreements be provided at least fourteen (14) days prior to execution of the franchise agreement.
• Allowing both prospective and existing franchisees to freely associate; and
• Preventing franchisors asking the franchisee to execute a waiver either in verbal or written form.

Franchisors and franchisees (both prospective and current) must always consider the ramifications of the Franchising Code of Conduct.  These recent amendments are examples of the complex nature of the Code, what is required for disclosure and compliance phases. 

For further information contact:
Donna Sewell
T (07) 32929748
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