1. The changes to the Franchising Code of Conduct in 2022
Hey, franchisors! You need to be aware there are some new changes to the Franchising Code of Conduct in 2022. New obligations of franchisors have been introduced. Penalties for breach of these obligations are higher than before.
The current code is set out in Schedule 1 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 under Section 51AE of the Competition and Consumer Act 2010. The key aspects of the Code are “to require franchisors to disclose certain information to franchisees, prescribe minimum standards in franchise agreements and to provide dispute resolution processes”[1].
2. The Addition of Part 5A Franchise Disclosure Register to the Code in 2022
The most significant change in 2022 is the addition of Part 5A to the Code, which establishes the Franchise Disclosure Register (the Register). The purpose of this addition is to amend the Code to increase transparency of the operation and structure of franchise system, before prospective franchisees enter into franchise agreements.[2]
2.1. The Register and obligations on franchisors
The Register is established under clause 53 of the Code. It is hosted and administered by the Australian Government’s Department of the Treasury.
The contents of the Register are detailed under clause 53A. Clause 53A divides the contents into two categories: information, and documents. The information required to be provided by franchisors is detailed under clauses 53A(1) and 53A(2). Some examples of the required information are the name of the franchisor; the name under which the franchisor carries on business in Australia relevant to the franchise; the address, or addresses, of the franchisor’s registered office and principal place of business in Australia.
The documents on the Register provided by franchisors under clause 53A(3) include: the disclosure document created and maintained by the franchisor under clause 8; the key facts sheet created and maintained by the franchisor under clause 9A; the standard form of the franchise agreement used by the franchisor.
The franchisors are also required to keep information provided up to date annually on or before the 14th day of the fifth month following the end of the financial under clause 53E(3)(c).
In contrast to the information which the franchisor has an obligation to provide to the Register, Part 5A doesn’t introduce new obligation for the franchisor to provide to the Register the documents listed under clause 53A(3).
2.2. Who will be affected
Not all the franchisors operating in Australia need to register. Part 5A has put obligation on the franchisors, who falls into the scope of clause 53C(1) or clause 53D(1), to provide information required under Division 2 of Part 5A.
Clause 53C(1) provides that clause 53C applies to a franchisor if
- the franchisor has created a disclosure document under clause 8; and
- on or before 31 October 2022 the franchisor gives a copy of the disclosure document under clause 9; and
- if the franchisor is the master franchisor in a master franchise system—the master franchise system has 2 or more subfranchisors.
Clause 53D(1) provides that clause 53D applies to franchisor if
- the franchisor is proposing to enter into a franchise agreement with a prospective franchisee; and
- a copy of the disclosure document relating to the franchise is required to be given to the prospective franchisee under clause 9; and
- the franchisor has not previously provided information relating to the franchise for inclusion in the Register under this clause or clause 53C; and
- If the franchisor is the master franchisor in a master franchise system—the master franchise system has 2 or more subfranchisors.
2.3. When is the franchisor required to provide information to the Register
If the franchisor falls into the scope of clause 53C(1), you need to provide required information to the Register on or before 14 November 2022 as per clause 53C(3)(b). If clause 53D(1) applies, the franchisor is required to provide the information at least 14 days before the franchisor enters into the franchise agreement with the prospective franchisee as per clause 53D(3)(b).
2.4. Penalties
Failure to comply with clause 53C(2) or 53D(2) or 53E(2) will result in a Civil penalty of 600 penalty units or $133,200 for the current financial year. This doubles the amount of penalties in the old version of the Code of Conduct.
Franchisors, take action now to avoid any breach and subsequent financial losses. Make sure you provide required information to the Register in the approved manner and form by the deadline, and set up a reminder to update the information each year.
[1] Explanatory Statement, Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) 2.
[2] Explanatory Statement, Competition and Consumer (Industry Codes – Franchising) Amendment (Franchise Disclosure Register) Regulations 2022 (Cth) 1.