Are you up to date with the latest franchising disclosure requirements?

From November 2021, franchisors must include new information in their disclosure documents for prospective franchisees.

Summary of new disclosure document requirements

Franchisors need to be aware of important changes to the pre-entry disclosure obligations of franchisors. Your disclosure documents must now include additional information on:

  • lease arrangements,
  • franchisee goodwill rights,
  • capital expenditure, and
  • instances of dispute resolution or arbitration that have occurred within the previous financial year.
Fast food
Are you up to date with the 2021 franchising code changes?

Additionally, you need to provide prospective franchisees with a Key Facts Sheet highlighting the most important information in the disclosure document.

Other Franchising Code amendments

Earlier amendments came into effect last July. The amendments were implemented in response to the Fairness in Franchising report handed down on 14 March 2019. As well as the more onerous disclosure obligations, some of the key recommendations from this report that have now been implemented are:

  • extending the cooling off period in franchise agreements, and
  • enhancing the collective powers of franchisee groups in dispute resolution.

Stemming from these recommendations, the amendments are intended to provide better protections to franchisees, improve fairness and transparency in franchising, and ultimately promote enhanced competition and fair trading within the sector.

Dispute resolution and termination changes

Options for alternative dispute resolution have been expanded and now include conciliation, mediation and arbitration.

By agreement with the franchisor or through the Australian Small Business and Family Ombudsman, multiple franchisees with similar disputes can now collectively participate in arbitration. Franchisees with similar disputes are permitted to discuss the nature of their disputes with one another when determining whether to act collectively, even if this would otherwise breach confidentiality clauses within their franchise agreements.

The cooling off period after a franchise agreement has been entered into has been extended from 7 days to 14 days. A franchisee now also has 14 days to terminate their franchise agreement after being provided with a proposed lease by the franchisor. Additional changes to termination requirements enable franchisees to dispute ‘special circumstances terminations’, of which they must be given 7 days’ notice by the franchisor.

Capex, marketing funds and legal costs

The prohibition on significant capex for franchisees has been extended from the auto industry to the rest of the market.

Franchisors should familiarise themselves with the changes for administering marketing funds, in addition to the new disclosure requirements and increased penalties for marketing fund non-compliance.

There is also a limitation on passing legal costs through to franchisees.

Restraint of trade clauses

Franchisors are now more limited in their ability to enforce restraint of trade clauses. A restraint will only have effect during the franchise term, and not after termination, unless the franchisee was in serious breach of the agreement immediately before termination.

Moving forward

These amendments cover many areas and place a number of more onerous obligations on franchisors when entering into agreements with franchisees. The ACCC has made a useful summary of the key provisions of the Franchise Code. In light of these changes, it is important for franchisors to ensure their franchise agreements and disclosure documents comply with these requirements.

Author: Andrew Geraghty, paralegal.

ACCC announces 2019 enforcement priorities

Earlier this week, the ACCC announced its enforcement priorities for 2019.

As well as the enduring priorities of:

  • cartel conduct;
  • anti-competitive conduct;
  • product safety;
  • conduct affected vulnerable and disadvantaged consumers; and
  • conduct affecting Indigenous consumers,

this year’s focus areas include:

  • consumer guarantees on high value electrical products and whitegoods;
  • anti-competitive conduct and competition issues in the

financial services sector, including foreign exchange services where fees “seem to remain stubbornly high“;

  • opaque pricing of essential services, including telecoms and energy;
  • protection for small business, including under franchising and unfair contract requirements; and
  • customer loyalty schemes.

A new focus is on emerging issues in advertising and subscriptions on social medial platforms, especially for younger consumers.

In announcing the 2o19 priorities, Chair Rod Sims stated that the ACCC expects 3 significant cartel investigations to be referred to the Commonwealth DPP. The ACCC will also be occupied with the Consumer Data Right, where pilots and generic data sharing are expected to be in place in July, with consumer data to be shared by February next year.

If it quacks like a franchisor …

McDonald’s, Subway, KFC – all well-known global giants in both fast-food and franchise systems.

These companies, among many others around the world (not just within the fast food industries), are easily recognisable to us as franchisors.

However, franchise systems come in many shapes and sizes, and there are some franchises that are not quite as well-known and obvious as the ones above. Companies may even try to distance themselves from the F word, and associated franchise regulation, by telling everyone (or at least the parties contracting with them) that they are expressly not franchisors.

This situation can be seen in the recent ACCC action against the Australian subsidiary of Swedish power-tool powerhouse, Husqvarna Australia.

Husqvarna and the ACCC

Earlier this year, the ACCC took action against Husqvarna.

The ACCC was concerned that the company was in breach of the Franchising Code of Conduct (Code) and the Competition and Consumer Act (Act). Husqvarna had told its dealers that their “dealership agreements” were not franchising agreements and, consequently, they were not entitled to protections for franchisees under the Code.

The ACCC also argued that the company was likely to have contravened the Act as a result of making misleading representations and that the dealer agreements contained unfair contract terms.

… and swims like a franchisor …

In the result, Husqvarna admitted that categorising its agreements in the way it had, ‘probably’ did in fact mislead the dealers. To resolve the issue, Husqvarna also agreed to rewrite its agreements to ensure they complied with the Code and the Act. Also, the company agreed to enter an undertaking with the ACCC that it will not enforce any unfair contractual terms in the existing agreements.

Define: “Franchise Agreement”

An agreement will be covered by the Code when:

  1. A party, having substantial control over a business, grants another party the right to carry on that business;
  2. The business is associated with a specific brand name or trade mark; and
  3. The other party is required or agrees to pay for the right to use the brand and operate the business.

If an agreement satisfies all of the above, it will be considered a franchise agreement and will therefore be covered by the Code.

Importantly, a franchisor cannot simply attempt to waive or exclude the mandatory obligation to comply with the Code and the relevant protections for franchisees.

The Husqvarna case provides an important lesson for all companies that appoint dealers, distributors, licensees or similar, highlighting the importance of carefully assessing your agreements to ensure whether they may be considered a franchise agreement.

As Mick Keogh, the ACCC Deputy Chair, put it: “if it looks and smells and appears to be a franchise agreement, it’s considered to be one, irrespective of what the franchisor says.”

Are you a franchisor or franchisee?

If you are a business concerned that your agreements may be considered a franchise agreement, or if you are considering becoming a franchisee and would like to know your protections under the Code, please contact us.

Author: Blake Motbey, Paralegal

Franchisors – are you ready for the new unfair contracts rules?

NotebookThe new unfair contracts rules will apply to protect small businesses in standard contracts that are made or varied from 12 November 2016.

Franchisors should already have amended their agreements and disclosure documents, and included the new information statement in their document packages, following the earlier amendments to the Franchising Code of Conduct that took effect last year.

Franchisors also need to remember to keep their disclosure documents up to date.

The unfair contract rules protect small business by prohibiting standard contract provisions which: Continue reading Franchisors – are you ready for the new unfair contracts rules?