What laws apply to franchising?
The Franchising Code of Conduct is the key piece of government regulation of the franchise industry.
The Code introduces mandatory requirements to be complied with by franchisors with the object of enabling prospective franchisees to make an informed decision about the opportunity offered.
The Franchising Code of Conduct is a mandatory industry code under section 51AE of the Competition and Consumer Law Act 2010 (formerly the Trade Practices Act). Any breach (section 51AD) of the Code will give rise to the wide discretionary remedies available under the Act that already exist for an aggrieved party. Franchising is also subject to the unconscionable conduct provisions of the Trade Practices Act.
The Code is enforced by the Australian Competition and Consumer Commission (ACCC).
The regulatory objective of the Franchising Code is to address the effect on small business of:
- an inability to understand complex documents;
- unfair contract terms;
- unfair conduct within commercial relationships; and
- difficulties in resolving disputes in a timely and cost effective manner.
A number of important elements addressed in the Franchising Code of Conduct are:
- a definition of ‘franchise agreement’ to potentially include distribution, product supply and intellectual property licenses;
- franchisor disclosure to franchisees and prospective franchisees;
- minimum standards, such as cooling-off periods and auditing requirements on marketing funds;
- mandatory mediation processes, where disputes cannot be resolved within the franchise system;
- procedures for termination.
If a franchisor does not comply with the Code, it could be subject to:
- a private action by the franchisee; or
- official action by the ACCC.
The ACCC monitors and enforces the Code as well as investigating and dealing with any breaches.