Proposals to better protect franchisees: brave, but will Abbott agree?
An independent franchising review commissioned by the federal government has made recommendations for significant amendment of the Franchising Code of Conduct to provide greater protection to franchisees.
The Code is a mandatory industry code originally introduced in 2004 to regulate the behaviour of franchisors and franchisees, particularly to address a perceived power imbalance between them in favour of the former.
While the Code has been reviewed several times in its history, including in 2008 and 2010, the latest recommendations are arguably the largest overhaul of the Code since its inception and would introduce significant change if adopted. However, it is very unlikely that the federal government will have time to introduce legislation to enshrine the proposed changes in light of the imminent election. Nonetheless, the recommendations may be adopted in whole or part by the incoming government.
The key proposals of the review include:
- imposing an express obligation on the parties to act in good faith;
- introducing a stronger enforcement regime and increased penalties;
- improving franchisor disclosure;
- introducing new protections for franchisees, including:
- allowing them to terminate the franchise in some cases of franchisor's insolvency;
- prohibiting franchisors from imposing unreasonable significant unforeseen capital expenditure on them;
- ensuring that they are not prevented from competing with franchisors in certain circumstances where the franchisor has refused to renew the franchise agreement;
- preventing franchisors from requiring them to pay the costs of dispute resolution or sue outside the jurisdiction in which they do business.