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What you need to know about the Franchising Code of Conduct review 

The release of a landmark review into Australia’s franchise law has shone a light on potential changes that may soon shake up the industry. 

 

For franchisees and franchisors, it’s good news with the Commonwealth Government making a clear statement on its commitment to supporting the sustainability and growth of this key industry into the future. 

 

Led by small business expert Dr Michael Schaper, the Independent Review of the Franchising Code of Conduct was delivered in Parliament in February this year, making 23 formal recommendations and 34 implementation suggestions for the Government to consider. 

 

This review comes ahead of the existing Franchising Code’s expiration in April 2025, with an updated set of regulations expected to be in place by then. 

 

While final laws will still take some months to be drafted and enacted, the recommendations and suggestions outlined in the Independent Review are the first step in what will ultimately lead to changes in the franchising industry’s operating landscape – and will be relevant to all stakeholders including new and existing franchisees and franchisors. 

 

The review 

Dr Schaper’s review set out to widely consult interested parties across the franchising industry, specifically assessing: 

  • whether the current Code is fit for purpose. 
  • the effectiveness of existing regulatory frameworks. 
  • the role of the Australian Competition and Consumer Commission (ACCC) and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in supporting enforcement and dispute resolution. 
  • the success and outcomes of recent regulatory changes in the automotive sector. 
  • the implementation and effectiveness of harsher penalties introduced to the Code in 2022. 
  • the first year of new Franchise Disclosure Register requirements added in late 2022. 

 

The findings and key recommendations 

The Independent Review of the Franchising Code of Conduct found the existing Code is generally fit for purpose and highlighted the strength of relationships between stakeholders within the industry in underpinning confidence and ongoing success. 

 

The report outlined a series of recommendations to improve existing processes, minimise duplication and complexity in current or new processes and advance the broader operating environment. 

 

One notable recommendation for further investigation focused on a potential fundamental change to the way new franchise systems can be established. That recommendation was to investigate whether a licencing system should be introduced to ensure that franchisors are qualified and meet certain minimum criteria before they enter into agreements with franchisees. Within the current regulations, there are no restrictions on any interested party setting up a franchise system. This suggestion of a licencing system presents an interesting case study for the sector’s participants to mull over, but there is no suggestion this change is likely to be implemented in the next round of Code amendments set for early 2025. 

 

Key recommendations outlined include: 

  • the Code should be remade largely in its current format with reviews to be conducted every 5 years. 
  • simplifying pre-entry information by merging the disclosure document and the key facts sheet. 
  • simplifying franchisor obligations in relation to existing franchisees including for existing franchisees to be able to opt out of disclosure and cooling off requirements. 
  • extending the new vehicle dealership agreement provisions, including the requirement for a reasonable opportunity for franchisees to make a return on investment and compensation for franchisees in the event of early termination, to all franchise agreements. 
  • enhancing public visibility and usage of the Franchise Disclosure Register, allowing greater transparency for existing or potential franchisees to access information relating to disputes and adverse actions previously taken against a franchisor by enforcement agencies for serious breaches. 
  • further Government resources to improve guidance and education for franchisees and franchisors. 
  • greater consultation of franchisees, by the franchise system, regarding major changes to business models during the term of a franchise agreement. 
  • simplifying the provisions relating to termination by the franchisor for serious breaches and further guidance provided relating to franchisee-initiated exits, to enhance the effectiveness of the existing regulatory framework. 
  • investigation of the feasibility of introducing a licensing regime to better regulate the franchisee-franchisor relationship. 

 

What this means for existing franchisees and franchisors 

It’s important to remember none of the recommendations are yet law – so we’ll need to wait and see what formal action, if any, needs to be taken by new or existing franchisees and franchisors with respect to Dr Schaper’s review. 

 

Driving franchising into its next era 

While the most recent franchising reviews have centred mostly on disclosure, and adding extra steps in processes for more robust practices, this review and the update to the Code are not expected to increase the disclosure obligations or add significant effort to ongoing administration and documentation. 

 

The proposed changes should not be cause for concern. There is a focus on finding improvements to strengthen the system for all parties and simplifying processes without adding too many further requirements, and taking a look at the broader state of the franchising industry. 

 

Focus on change management 

One of the recommendations relates to change management – helping franchisees and franchisors to navigate unplanned changes or updated requirements not set out or provisioned for in their existing agreements. 

With the recent penalties introduced for unfair terms in standard form franchise agreements, a spotlight has been placed on creating more certainty and transparency for franchisees, whilst balancing the need for flexibility in franchise systems.. 

 

Get your house in order 

 

Regardless of impending regulatory changes, it’s always wise to ensure your business’ house is in order. Prioritise having a team of professional advisors on your side to review any new and existing agreements and ensure your processes are up to date with the requirements of the Code. 

 

Keep abreast of any relevant legal developments, from unfair contract terms to workplace and privacy law, and actively seek out advice to address any concerns or gaps in knowledge or in your agreements promptly. 

 

By being prepared now – and ensuring your existing systems are compliant – you can put your business in the best position to swiftly implement any new changes when the time comes. 

 

Where to from here 

 

With more than 1,100 franchise systems and 70,000 franchisees across the country, the franchise sector is a significant player in Australia’s economy. 

 

Despite tough business conditions in recent years, the franchising industry’s ongoing growth has been secured through the sector’s innovative and entrepreneurial spirit. 

 

The results of this Independent Review and the outlook towards an updated Franchising Code of Conduct in the next 12 months provide insight into the future direction of Australia’s franchising industry. 

 

With business practices and the adaptation of new laws front and centre, franchisees and franchisors should remain on the lookout for updates and announcements from the Commonwealth Government and industry associations throughout 2024. 

 

There are still many questions around obligations and compliance, which will become clearer as laws are drafted and enacted, so for now stay alert and ensure your business is ready to seek advice and act at the right time. 

 

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. 

 

DMAW LAWYERS P: +61 421 931 777 | E: ssurmei@dmawlawyers.com.au | W: https://dmawlawyers.com.au/