WHAT IS THE CODE OF CONDUCT?

A snapshot of the mandatory industry code.

Regulations are important when you’re operating a franchise and this code is

the foundation for franchising rules.

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The Code sets out obligations and processes which must be followed and cannot be waived.

Franchising Code of Conduct is a mandatory industry code. That means franchisors, both in Australia and overseas brands who operate here, must comply with it.

WHY DOES THE FRANCHISING CODE EXIST?

Franchisors typically have the lion’s share of power in a franchise relationship and the reason the Code was introduced was to try and reset the balance.

The various updates have each time worked to improve the franchisee/franchisor power balance.

The Code also plays a role in making potential franchisees aware of the commitments they enter into when buying a franchise. Getting the right information to make an informed decision is an important step in the buying process, and that’s where the Code can provide guidelines and insights.

WHAT DOES IT DO?

First of all it defines what exactly a franchise agreement is, and then regulates how franchisors and franchisees act towards each other.

The Code sets out obligations and processes which must be followed and cannot be waived.

For instance, the Code outlines:

• A disclosure document provides crucial information about the franchise system such as details about current and former franchisees, costs franchisees will have to pay out during the course of the franchise term and any litigation that the franchisor is involved in. This franchisor has to maintain this and update it every year. • The franchisor has to give a franchise buyer a current disclosure document, a copy of the proposed franchise agreement and a copy of the Code. These must be given at least 14 days before a franchise agreement is entered into.

• There is a seven day cooling off period allowed after a franchise purchase but this doesn’t include renewed agreements or variations or transfers of existing franchise agreements.

The Code also covers things like restrictions around significant capital expenditure, how marketing funds must be operated, what happens when a franchisee breaches the franchise agreement, mediating disputes, and acting in good faith.

BREACHING THE FRANCHISING CODE

Complying with the Code is an essential part of being a franchisee or franchisor. If either a franchisor or franchisee breaches the Code, they are also breaching the Competition and Consumer Act, and this has serious consequences. A breach can attract severe penalties of up to $63,000.

The Australian Competition and Consumer Commission is responsibile for enforcing the Code and can issue infringement notices which attract a fine of $10,500 for each breach.

THE CODE AND FRANCHISING

The Franchising Code has been part of the franchising landscape since 1998. It has been updated several times, each revision an attempt to better balance the franchisee/franchisor relationship.

A copy of the Code can be found on the ACCC website.