Australia’s franchising industry has reached a pivotal moment. As the sun sets on the current Franchising Code of Conduct and the Commonwealth Government prepares to deliver the findings from a comprehensive review of the Code, one thing is for certain: the industry has an opportunity to take stock of the past, examine the present and shape its future. With the Code’s expiration nearing in April 2025, this review is more than just routine maintenance; it’s a crucial examination of the practical implementation and limitations for franchisees, franchisors and suppliers across the system.
Under the spotlight
Specifically, the review is seeking to address the impact of recent changes to the Code including:
- The general fitness for purpose of the Franchising Code (noting the existing Franchising Code is set to sunset on April 1, 2025 and action to extend the Code is required).
- The role of the Australian Competition and Consumer Commission and the Australian Small Business and Family Enterprise Ombudsmen in supporting enforcement and dispute resolution under the franchising regulatory framework.
- The role of the Franchising Code in regulating the automotive sector, including selected protections exclusive to dealerships and the effectiveness of reforms in 2020 and 2021.
- The impact of 2022 reforms which increased certain penalties available under the Code, including some up to $10 million, and introduced the Franchise Disclosure Register.
(Source: Small and Family Business Division, Treasury, Commonwealth Government)
The review, led by Dr Michael Schaper, has brought together four separate reviews into one process to allow effective consideration of varying factors and reduce duplication for key stakeholders. By the end of December this year, existing and potential franchisees can expect an outline of adjustments to business practices and the adaptation of new laws that may come into effect over the next 12 months and propel the industry into its next era. In the meantime, franchisees and franchisors must ensure they comply with recent updates and amendments to the Code.
Franchise Disclosure Register
One of the notable changes leading up to this review was the introduction of a public register for franchisors in November 2022. Most franchisors would have recently updated the information on the register before 14 November 2023. Potential franchisees should ensure available information is utilised in evaluating business opportunities. The register offers a simpler comparison between different franchise systems, in terms of costs, initial investments and terms of agreement. However, the effectiveness of the register is a key area of review to evaluate whether it is serving its primary purpose of empowering potential franchisees with transparent and easily accessible information.
Compliance with disclosure requirements
At this time of year, most franchisors would have recently completed their disclosure document update in accordance with the Code’s requirements. Franchisors are obligated to update their disclosure documents within four months of the end of the financial year. For most franchisors, this deadline is 31 October. As the disclosure document is mostly geared towards prospective franchisees, existing franchisees won’t automatically receive an updated disclosure document unless they request a copy, but they should still expect to receive the necessary documentation as set out in the Code. This includes the marketing fund financial statement and audit report.
Disclosure of materially relevant facts
Additionally, franchisors must arrange updated financial reports or alternatively a director’s statement and audit report relating to the franchisor’s financial position. For prospective franchisees about to sign an agreement between the end of June and the release of the updated financial information, there is an additional obligation for the franchisor to supply the updated financial information if the final document is in their possession. Therefore, both franchisors and franchisees must meticulously navigate these requirements to avoid potential pitfalls before the franchisee signs the franchise agreement. The intricate timing can easily be overlooked and could lead to a significant ‘super penalty’ of up to $10 million for franchisors who do not comply.
Issues facing the industry
Other aspects facing the industry include worker shortages, supply chain issues and increasing regulation including recent changes to unfair contract term laws. While these are not new concerns or unique to the industry, they are focal points for franchisees and franchisors alike.
Franchising makes a significant contribution to the Australian economy, with franchised businesses turning over approximately $170 billion each year and employing more than half a million workers. And franchising in Australia is vast and diverse, covering a wide range of sectors from cafes and services to car dealerships and other automotive businesses. With the impending Franchising Code of Conduct Review findings, many questions will be answered. What changes will be proposed, and how they will impact franchisees, franchisors and the industry as a whole? Will the review meet its goal of leading to a streamlined and more transparent franchise system, and reducing regulatory burden?
The Australian franchising industry is evolving rapidly. With careful consideration and constructive change, franchising will maintain its strength as a vibrant and vital contributor to Australia’s economic and business success.
It can be daunting to navigate contracts and regulatory changes, so seeking the advice of an experienced franchise lawyer is recommended.
Existing and prospective franchisees should obtain professional legal advice about how any updated obligations may impact their business, including rights and processes, and what changes can be made now to ensure compliance with the existing changes.
Seva Surmei is a Principal in DMAW Lawyers’ transactions team, specialising in franchising, licensing and distribution. She is also secretary 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/
P: +61 421 931 777 | E: firstname.lastname@example.org | W: https://dmawlawyers.com.au/