Franchisees and franchisors are set to experience further changes to Australia’s Franchising Code of Conduct (Code) following an independent review last year.
Following recommendations from former Deputy Chair of the ACCC Dr Michael Schaper, the new Code includes broad changes including a slightly simplified pre-entry disclosure process, a new requirement for franchisees to be provided with compensation for early termination in specific circumstances and the need for franchisors to ensure there is a reasonable opportunity for franchisees to make a return on investment.
Most of the provisions of the new Code will apply from 1 April 2025 which is when the existing Code will expire. A further review of the Code is due in 2030.
The new Code brings important changes to Australia’s franchise law and all stakeholders, including new and existing franchisees and franchisors, should be aware of the changes.
What you should know
Changes to pre-entry disclosure
The key facts sheet will be consolidated into the disclosure document.
While the key facts sheet was intended to help prospective franchisees navigate what are often lengthy disclosure documents, removing the requirement for two separate documents is a step in simplifying this preliminary process.
Existing franchisees will also have the right to opt-out of receiving a disclosure document for a new franchise agreement if they recently signed the same or substantially the same franchise agreement with the franchisor. Franchisees that meet that criteria can also opt-out of the 14-day cooling off period that would usually apply after signing the franchise agreement.
These provisions will simplify the process for existing franchisees to sign up to further franchise agreements with a franchisor. Franchisors will also have peace of mind that agreements will be set in stone upon signing if the franchisee opts-out of the cooling off period.
Compensation for early termination
Franchise agreements must provide compensation for franchisees if a franchise agreement is terminated early because the franchisor:
- withdraws from the Australian market;
- reduces its network of stores in Australia; or
- changes its distribution model in
The franchise agreement must specify how this compensation will be calculated, including the following:
- lost profits from direct and indirect revenue;
- any large expenses incurred by the franchisee at the franchisor’s request that are yet to be recovered;
- loss of opportunity in selling established goodwill; or
- costs associated with winding up the franchised
The franchise agreement will also need to provide for the franchisor to accept the return of, and buy back or compensate the franchisee, for certain items such as stock, specialty equipment and branded products or merchandise that cannot be repurposed.
Reasonable opportunity for return on franchisee’s investment
Franchise agreements must provide franchisees with a reasonable opportunity to make a return on any investment required by the franchisor under the franchise agreement.
When a franchisee can lodge a dispute notice
There are changes to the termination process in respect of key events.
A franchisee cannot dispute a termination if a franchisor terminates a franchise agreement with seven days’ notice on the following grounds (some of which are new additions to the Code):
- the franchisee no longer holds any required licence to operate the franchised business;
- the franchisee becomes bankrupt, insolvent under administration or a Chapter 5 body corporate;
- the franchisee is a company deregistered by the Australian Securities and Investments Commission;
- a court is satisfied that the franchisee has committed a serious contravention of a Fair Work civil remedy provision;
- a court is satisfied that the franchisee has contravened certain sections of the Migration Act 1958;
- the franchisee is convicted of an offence against certain sections of the Migration Act 1958; or
- the franchisee is convicted of a serious
A franchisee can dispute a termination within seven days of receiving a franchisor’s notice of termination on the following grounds:
- the franchisee voluntarily abandons the franchised business;
- the franchisee operates the business in a manner that endangers public health and safety; or
- the franchisee acts fraudulently in connection with the franchised
These changes to the termination process recognise some termination events that should not be subject to a dispute by a franchisee, particularly those related to matters determined by a court or an authority and are not based on the franchisor’s discretion.
Other obligations to note
Disclosure of former franchisee details
A franchisor will not be permitted to disclose a former franchisee’s personal information to a prospective franchisee unless the franchisor gives that former franchisee a notice in writing (at least 14 days before the intended disclosure) that the former franchisee may opt out of such disclosure.
Update documents
The new Code has been re-ordered, with different numbering for various sections compared to the previous Code.
Franchisors will need to update their template franchise agreement to ensure not only that the correct sections of the Code are referred to but to address other obligations of the Code that have changed. Franchisors will also need to make some minor amendments to their disclosure document to reflect the prescribed form set out in the new Code.
Deadlines
Most amendments to the Code will apply to franchise agreements entered into, transferred, renewed or extended from 1 April 2025.
However, some provisions of the new Code will only apply to franchise agreements entered into, transferred, renewed or extended from 1 November 2025 including the requirements for franchise agreements to provide for:
- compensation for early termination in specific circumstances; and
- a reasonable opportunity for a franchisee to make a return on
The requirement for a disclosure document to comply with the new Code appears to apply from 1 April 2025 (although the drafting is unclear). This adds to the administrative burden for franchisors who will need to update their disclosure document outside of the usual update timeframe (which is ordinarily once per year within four months of the end of their financial year).
This article does not address all of the changes that come with the new Code. Therefore, it will be important for franchisors and franchisees to read the new Code, consider their obligations and seek legal advice.
With April right around the corner, now is the time for franchisors and franchisees to get their house in order before these regulatory changes take effect. Although it might still be business as usual, it’s important to be across the key changes and the transitional arrangements to ensure agreements, disclosure documents and processes are compliant with the Code.
About the author:
Seva Surmei is a Principal in DMAW Lawyers’ transactions team, specialising in franchise law and property law. She is also a committee member of the Franchise Council of Australia (South Australian chapter) and a Women in Franchising committee member. Seva was awarded “Lawyer of the Year” for Franchise Law in South Australia in 2022 and 2024 and named in the “Best Lawyers in Australia” list since 2021.
DMAW Lawyers is a leading South Australian based commercial law firm providing services throughout Australia.
Seva Surmei – https://dmawlawyers.com.au/team/seva-surmei/
Contact:
P: +61 421 931 777 | E: ssurmei@dmawlawyers.com.au | W: https://dmawlawyers.com.au/