The Federal Government has released information about proposed changes that are to be made to the Trade Practices (Industry Codes – Franchising) Regulation 1998. The proposed amendments are expected to take effect from 1 January 2015 and apply to new franchise agreements entered into on or after 1 January and existing franchise agreements renewed on or after 1 January, with some limited exceptions.
A list of the proposed amendments is detailed below:
Key Changes to Franchise Agreements:
- Reducing red tape:
- Removal of the ‘double disclosure’ requirement currently imposed on master and foreign franchisors.
- Removal of disclosure obligations in relation to summarising provisions of the franchise agreement in the disclosure document.
- Removing the short form disclosure document from Annexure 2 of the Franchising Code.
- Improving information available to franchisees:
- Require franchisors to provide prospective franchisees with an information sheet which gives them an overview of the risks and rewards of franchising.
- Improve the disclosure requirements of the online trading activities of franchisors.
- Ensure franchisors remind franchisees they are entitled to a current disclosure document at least six months prior to the renewal of the franchise agreement.
- Introduce greater transparency for the way marketing funds are used and accounted for by –
- Requiring additional disclosure on the types of expenses marketing funds are being used for;
- Giving franchisees the option to vote for an annual audit of the marketing fund; and
- Requiring franchisors to keep marketing funds in a separate trust account.
- Strengthening the balance in franchise agreements:
- Enhance protections for franchisees against significant capital expenditure imposed by a franchisor.
- Franchisors will not be able to impose significant capital expenditure upon a franchisee unless –
- The expenditure is disclosed in the franchise agreement;
- A majority of franchises in a system agree to the expenditure; or
- The expense is considered necessary by the franchisor and can be justified by a statement, which provides the rationale, costs and anticipated benefits associated with making the investment.
- Prevent parties to a franchise agreement from attributing their costs in dispute resolution to the other party.
- Franchisors cannot require franchisees to conduct dispute resolution outside the State where the franchisee’s business is located, unless otherwise agreed at the time of the dispute.
- Prevent franchisors from imposing unreasonable restraints of trade upon former franchisees.
- Franchises owner by the franchisor must contribute to the franchisor’s marketing and cooperate funds to the same level as franchisee franchises.
- Improving conduct in the sector and the overall effectiveness of the Code:
- Introduce an obligation to act in good faith into the code.
- Improve compliance and enforcement outcomes through new tools available for use by the ACCC –
- Seek civil pecuniary penalties of up to $51,000 from the court; and
- Issue infringement notices of up to $8,500 without having to seek a court order.
- ACCC will be able to use its audit powers to obtain documents that the franchisor has relied upon to support statements and claims made in their disclosure document.
- Franchisors will not be able to interfere with prospective franchisees’ speaking to ex-franchisees.
The extent of these changes will require all current franchise agreements to be amended to reflect the changes. Your lawyer can assist with this to ensure your legal obligations are met.