THE CODE IS THE KING

Inside Franchise Business - - Contents - DR MICHAEL SCHAPER

The ACCC has your back once you be­come a fran­chisee.

As you go through the prac­ti­cal pro­cesses of set­ting up your new busi­ness, re­mem­ber that the Fran­chis­ing Code of Con­duct is your frame­work for deal­ings with your fran­chisor. It doesn’t mat­ter whether a fran­chise op­por­tu­nity in­volves wash­ing win­dows, fix­ing fences or sell­ing salad, there are ba­sics to be ob­served.

When you move into fran­chis­ing, the Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion has your back with its Fran­chis­ing Code of Con­duct.

Known as the Code for short, the Fran­chis­ing Code of Con­duct is bind­ing on all fran­chis­ing par­tic­i­pants – the fran­chisor and you, the fran­chisee – and sets out the rights and obli­ga­tions of both.

Com­mit­ting to a fran­chise is a big fi­nan­cial de­ci­sion. Prospec­tive fran­chisees of­ten use their life sav­ings to buy into the sys­tem. The stakes are also high on the other side of the equa­tion, as fran­chisors put their hard-earned rep­u­ta­tion and busi­ness model on the line.

With this in mind, the Code re­quires fran­chisors to dis­close cer­tain in­for­ma­tion to en­able prospec­tive fran­chisees to make an in­formed de­ci­sion. Dis­clo­sure also al­lows the fran­chisor to put all the re­quire­ments of the fran­chise sys­tem on the ta­ble.

Un­der the Code, a prospec­tive fran­chisee must, as a min­i­mum, be given four key doc­u­ments:

1. An in­for­ma­tion state­ment when ex­press­ing an in­ter­est in buy­ing a fran­chise. This two-page doc­u­ment high­lights some of the risks and re­wards of fran­chis­ing.

2. A dis­clo­sure doc­u­ment, which con­tains key finan­cial in­for­ma­tion and de­tails about the fran­chisor and the sys­tem. It cov­ers things like: a. fran­chisor ex­pe­ri­ence b. fran­chise ter­ri­tory c. on­line sales d. site se­lec­tion e. pay­ments f. fran­chisor sol­vency

and g. what will hap­pen when the agree­ment comes to an end.

3. The fran­chise agree­ment

is the con­tract that sets out each party’s rights and re­spon­si­bil­i­ties. It is cru­cial you seek in­de­pen­dent ad­vice from a lawyer, busi­ness ad­viser and ac­coun­tant about the op­por­tu­nity be­fore you com­mit.

4. The Fran­chis­ing Code of Con­duct it­self, which es­tab­lishes the rules for the re­la­tion­ship and in­cludes a “cool­ing off” pe­riod for the prospec­tive fran­chisee. If you change your mind about be­com­ing a fran­chisee, you are en­ti­tled to ter­mi­nate your fran­chise agree­ment within seven days of en­ter­ing into it, or mak­ing a pay­ment un­der the agree­ment (whichever hap­pens first). If you do ter­mi­nate the agree­ment, you are en­ti­tled to a re­fund for pay­ments you have made, mi­nus the fran­chisor’s rea­son­able costs (if these costs were set out in the agree­ment).

Your fran­chisor’s dis­clo­sure obli­ga­tions do not end when you be­come a fran­chisee. The fran­chisor must: • con­tinue to dis­close cer­tain “ma­te­ri­ally rel­e­vant facts” within 14 days of be­com­ing aware of them, and

• pro­vide you with an an­nual fi­nan­cial

state­ment of the mar­ket­ing fund and, if re­quired by the Code, au­dit­ing re­ports of the fund.

Should you wish to ter­mi­nate the agree­ment, the Code spells out con­di­tions for this. For in­stance, if a fran­chisor wishes to ter­mi­nate the fran­chise early be­cause you have al­legedly breached the con­tract, they must give rea­son­able no­tice, state what you need to do to fix it, and al­low rea­son­able time for this to hap­pen. If you fix a breach within this time, the fran­chisor will be un­able to ter­mi­nate the fran­chise on this ground.

If you change your mind about be­com­ing a fran­chisee, you are en­ti­tled to ter­mi­nate your fran­chise agree­ment within seven days of en­ter­ing into it, or mak­ing a pay­ment un­der the agree­ment.

BE AWARE

You should be aware of your obli­ga­tions when fi­nal­is­ing a fran­chise agree­ment as it may in­flu­ence your de­ci­sion to en­ter the agree­ment.

Un­der the Code, a fran­chisor must act in good faith in their busi­ness deal­ings with you. This mu­tual obli­ga­tion ap­plies at all times. Good faith en­tails the par­ties ex­er­cis­ing their power rea­son­ably and not ar­bi­trar­ily.

Con­duct may lack good faith if a party

acts dis­hon­estly, for an ul­te­rior mo­tive or in a way that un­der­mines or de­nies the other party the ben­e­fits of the fran­chise agree­ment.

Should com­plaints arise, fran­chisors are re­quired to have an in­ter­nal pro­ce­dure for deal­ing with them. This pro­ce­dure must be set out in the fran­chise agree­ment. If you are un­able to re­solve your dis­pute with the fran­chisor within 21 days, you can re­fer the mat­ter to a me­di­a­tor, a neu­tral party that helps re­solve the is­sue through dis­cus­sion and un­der­stand­ing.

POWER TO PROS­E­CUTE

There are three ways to ac­cess me­di­a­tion: the Of­fice of the Fran­chis­ing Me­di­a­tion Ad­viser, the Aus­tralian Small Busi­ness & Fam­ily En­ter­prise Om­buds­man, and state small-busi­ness com­mis­sion­ers.

The Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion (ACCC) is re­spon­si­ble for en­forc­ing the Code and has the power to in­ves­ti­gate and pros­e­cute breaches. It does not have an in­di­vid­ual dis­pute res­o­lu­tion ser­vice, but is in­ter­ested in hear­ing about il­le­gal be­hav­iour and can of­fer you prac­ti­cal ad­vice and guid­ance on your rights and obli­ga­tions un­der the Code.

The ACCC’s web­site (www.accc.gov. au) has a wealth of in­for­ma­tion for fran­chisees, in­clud­ing de­tailed in­for­ma­tion on the Code, FAQs, a man­ual for fran­chisees and fact­sheets.

You can also keep up to date with events, court cases and changes to the law in the fran­chis­ing sec­tor by sign­ing up to the ACCC’s Fran­chis­ing In­for­ma­tion Net­work.

Deputy-chair­man, Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion

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