Slow and steady consultation on Franchising Code of Conduct review
At the time of writing, a consultation period is open, as are the lines of communication surrounding the exposure draft, which is a document containing the draft legislation of the impending changes to the Franchising Code of Conduct, following the release of the Wein Report more than 12 months ago.
Pleasingly, it seems the Government is quite well aligned with the sector itself in terms of policy, and is open to discussion, and keen to ensure the updated Franchising Code of Conduct has broad industry support.
The FCA has produced a detailed submission on the Exposure Draft released on 2 April, to ensure the changes are drafted in such a way that continues to support the Australian franchise sector, which has always been such an exciting place to do business.
The Minister’s media statement was largely in line with the expectations of the wider franchise sector. However, there are areas of the draft itself that the FCA believes require further finetuning to ensure the impending changes deliver the red tape savings promised by the Minister in his statement.
While much of the industry input is evident in both the statement and the draft, specific areas of the draft requiring attention are the proposed new good faith obligation, penalties, and the enforcement of post-termination restraints. Based on the recommendations in the Wein Report, it was expected the common law duty of good faith would become part of the Code. Since a new and separate obligation has been put forward, further work on the drafting is in order to avoid legal uncertainty and increased disputation, which is contrary to the Minister’s intentions. FCA has consulted widely within its own member base to ensure suggestions on the new version of good faith, along with other elements of the draft represent the views of the wider sector.
The Exposure Draft also goes further than the Wein Report with regard to penalties. The FCA is including suggestions on wording in its submission to ensure those penalties are for fundamental breaches of the Code, and are in line with improving our sector, rather than ambiguous wording that would lend itself to penalties for more trivial, unintentional breaches.
Similarly, the FCA is including a variation on wording for enforcement of post-termination non-compete provisions, in the submission to be lodged as this issue goes to press.
While the vast majority of what has been put forward is reasonable and serves to enhance franchise relationships, it is a matter of precise wording to ensure any changes are not enforced in ways that were not intended.
The FCA has also suggested an alternative method of implementation. Currently, the Draft applies the new Code only to franchise agreements new or renewed after 1 January 2015. This will create layered regulation for the entire length of an agreement for some brands. FCA has made suggestions that will apply to franchise agreements across the board.
At the time of publishing, the FCA, in conjunction with a representative FCA legal committee will have completed the detailed submission. Along with this, the FCA will continue to liaise with Government and represent our members’ best interests.
The most important aspect of franchising in Australia is that when done well, it is a win-win situation for both franchisor and franchisee. As an association, we will continue to represent franchisors that uphold our member standards and promote world’s best practice franchising. We will continue to work on their behalf to ensure Australia remains the best business environment in which to franchise in the world, for both franchisor and franchisee.
Editor’s note: Prior to publishing, the FCA has engaged in further consultation with the Department of Treasury. Go to www.franchise.org.au/articles/franchising-code-of-conduct-reviewconsulta... to read the update.
Visit the website of the Franchise Council of Australia for further information: