Key points

• Australian Government has announced a review of the Franchising Code of Conduct
• Submissions are invited on five broad topics, with a key focus on the general fit for purpose of the Franchising Code
• Franchisors and stakeholders have an opportunity to provide submissions by 29 September 2023

Introduction

Stakeholders in the franchising sector in Australia now have an opportunity to have their say after the Australian Government announced a comprehensive review of the key franchising law, known as the Franchising Code of Conduct (Franchising Code) and the broader franchising sector.

The review will be led by Dr Michael Schaper, who is also the former deputy chair of the Australian Competition and Consumer Commission (ACCC).

Background and Issues being reviewed

Australia’s franchising sector is reported to contribute AU$170 billion annually to Australia’s economy. The Franchise Council of Australia has estimated that over 1,200 franchisors and 94,000 franchise outlets operate in Australia and that they employ around 565,000 people.

The Franchising Code, being the principal regulatory framework underpinning the Australian franchise industry, has undergone yearly reforms since 2020 in response to the “Fairness in Franchising” report released back in 2019. This new review was expected to be conducted as the Franchising Code was due to sunset in 2025.

The consultation paper released (found here: Review of the Franchising Code of Conduct (treasury.gov.au)) considers a range of topics.

In particular, submissions are invited on five broad issues:

1. The scope of franchising regulation, with a particular focus on the general fitness for purpose of the Franchising Code (and including its role in regulating the automotive sector)
2. Before entering into a franchise agreement - considering the adequacy of documents and information available to prospective franchisees such as the public Franchise Disclosure Register
3. Enduring obligations in franchise relationships – considering the support offered to franchisees and franchisors during the term of the franchise arrangement and the role of the ACCC and Australian Small Business and Family Enterprise Ombudsman in supporting enforcement and dispute resolution under the franchising regulatory framework
4. Ending a franchise agreement and whether the reforms made in 2021 relating to compensation in the event of early termination and other franchisee protections to apply at the end of a franchise term were adequate
5. Enforcement and dispute resolution including the impact of the reforms providing for multi-party dispute resolution and the impact of recent significant increase in penalties for breach of the Franchising Code and the overall effectiveness of dispute resolution processes

As a result of the recent reforms to the Franchising Code, most franchisors have incurred significant costs as they needed to comprehensively review their franchise documents to ensure compliance with new obligations - many of these obligations being tilted towards franchisees. Some of the new “franchisee-friendly” protections included increasing the duration of the cooling off period, tightening termination opportunities for franchisors and requiring more information to be disclosed around rebates and other financial incentives enjoyed by franchisors as a result of franchisee operations.

This new review seeks to evaluate the impact of these material changes made in recent years, as well examining the roles played by the relevant regulatory bodies, being the ACCC and the Australian Small Business and Family Enterprise Ombudsman.

What next?

The review offers franchisors the ability to comment on the current franchising sector, as well as an opportunity to consider economic, technological and social themes which will impact the regulatory landscape moving forward. These include the rise of artificial intelligence, sustainability factors and the impacts of COVID-19 on small businesses.

Submissions can be made via writing, through video or audio or even by talking to a member of the Franchising Review Secretarial Unit over the phone. The closing date for submissions is 29 September 2023.

A report with recommendations is expected by the end of 2023.

Please contact Robyn Chatwood and Cassie Taylor or your usual Dentons franchise expert if you need assistance with submissions or more information.