FIVE THINGS…

Australia’s Franchising Code of Conduct is the foundation of the highly regulated sector. Check out what you need to know ...

Franchising Code of Conduct cheat sheet

1. IT IS FRANCHISING’S FRAMEWORK

The d ocument o utlines t he r ights and r esponsibilities of t he f ranchisee investing i n t he b usiness, a nd t he franchisor, w ho r uns t he f ranchise system. I t i s d esigned t o c reate t he framework f or a b alanced r elationship between f ranchisor a nd f ranchisee, where t he f ranchisor’s p ower i s not w ielded to t he d etriment of t he franchisee.

2. GOOD FAITH IS A PRINCIPLE

There i s a n o bligation u nder t he code for b oth t he f ranchisee a nd f ranchisor to a ct i n go od f aith. H owever, t his doesn’t p revent t he f ranchisor f rom taking commercial a nd competitive business a ctions. G ood f aith i s relevant f or t he e ntire f ranchise relationship, f rom t he n egotiation stage to t he t ermination of t he agreement.

3. FINANCIAL PENALTIES EXIST FOR NON-COMPLIANCE

There is an obligation under the code for both the franchisee and franchisor to act in good faith. However, this doesn’t prevent the franchisor from taking commercial and competitive business actions. Good faith is relevant for the entire franchise relationship, from the negotiation stage to the termination of the agreement.

4. TRANSPARENCY IS CRUCIAL

The document requires the franchisor to be transparent in its dealings with franchisees. Of particular importance are clarity on marketing and advertising costs and use of the marketing fund, as well as transparency in franchisor/ franchisee e-commerce transactions.

5. THERE’S A RISK FOR FRANCHISEES

The code i s d esigned to c reate a balanced franchise relationship but it c annot p rotect f ranchisees f rom normal b usiness r isk.

Franchisees a re e xpected to undertake effective due diligence of the franchise system, the franchisor and all elements of the proposed agreement.

For instance, the code has no power to impact elements of the agreement such as franchise fees.

A number of changes have been made to the code over the years to redress the inherent imbalance between franchisor and franchisee, but there will always remain some risk for everyone involved.

Read more about the Code here.