THE CODE IS THE KING
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.
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.