Independent Review of Franchising Code – Final Report Released

The Australian Government has now released the Final Report of the Independent Review of the Franchising Code of Conduct (Code) submitted by Dr Michael Schaper. The Report contains a number of significant findings and recommendations that have important implications for the franchising sector. The terms of reference of the independent review were quite broad as noted in our previous update, including consideration of the general fitness for purpose of the Code itself.

A copy of the Final Report is available here. 

Some of the key recommendations that have been made include the following:

• Retaining the Code but with certain suggested changes including:
  • Merging the disclosure document and key facts sheet to simplify and consolidate pre-entry information given to franchisees;
  • Enabling existing franchisees (renewing or extending an existing franchise agreement) to potentially opt out of disclosure and cooling off requirements which protect new franchisees;
  • Simplifying provisions relating to termination for serious breaches, which could include strengthening the right of franchisors to terminate immediately if appropriate compensation is paid to a franchisee;
  • Carrying out further work to limit the use of unreasonable restraints of trade in franchise agreements; 
  • Amending the definition of "motor vehicle dealership" to expand this to all sales, service and repair work; and
  • Including a clear statement of purpose in the Code.
• Increasing the scope of penalties under the Code and associated investigative powers and the infringement notice regime, with the suggestion that infringement notices should impose a penalty equivalent to the upper limit of infringement notices issued under the Australian Consumer Law (which is 60 penalty units for a body corporate);
• Investigating the feasibility of introducing a licensing regime for franchisors to better regulate aspects of the franchisor/franchisee relationship;
• Enhancing the public visibility and usage of the Franchise Disclosure Register and including additional information on the register relating to dispute resolution and adverse actions brought by enforcement agencies;
• Encouraging franchise systems, through education, to consult franchisees regarding any major change to the business model during the term of the franchise agreement;
• Creating a comprehensive online government resource for the franchising sector to provide online education and advice and Australian Government agencies (e.g., the Australian Competition & Consumer Commission (ACCC) and Australian Small Business and Family Enterprise Ombudsman (ASBFEO)) developing best practice guides for matters including:
  • Change management;
  • Operation of marketing funds;
  • Supporting franchisees who wish to exit;
  • How to effectively participate in voluntary arbitration and multi-party dispute resolution; and
  • Unfair contract terms.
• Giving ASBFEO additional powers to name franchisors who have not meaningfully participated in alternative dispute resolution (ADR) and giving franchisees access to low cost legal advice on prospects prior to formal ADR.

We await the Australian Government's response to the Report, particularly in relation to the suggested changes to the Code, the Franchise Disclosure Register and disclosure documentation.