Major Changes to the Franchising Code of Conduct


Significant changes to the Franchising Code of Conduct (“The Code”) that come into effect on 1 March 2008 can impact on your Franchise business if your Franchise documentation is not updated to bring it into line with the amended Code.

Some of the key changes are as follows:
  • A Franchise Agreement must no longer contain a clause which compels the Franchisee to waive their legal rights to sue the Franchisor for any false or misleading verbal or written representation made by the Franchisor.  Although this seems like a straight forward change, there may be difficulties in identifying clauses in Franchise Agreements that by implication compel or cause the Franchisee to waive their legal right to sue the Franchisor for any previous representation it may have made.
A review of one’s standard Franchise Agreement is therefore required to ensure that it complies with this change.
  • A copy of the Franchise Agreement in the form to be signed must now be attached to the Franchisor’s Disclosure document. While this seems straightforward, the difficulty with this change is that it could cause a substantial amount of time and paperwork as a new Disclosure document (along with its ancillary document) must be issued to the Franchisee each time that the Franchise Agreement is changed.
  • In the Disclosure document, the Franchisor will be required to disclose the names of businesses which provide the Franchisor with any type of financial benefit or rebate related to the supply of goods or services to the Franchisee.  

As previously mentioned, in total there are 66 changes to the Code and we have therefore not covered a substantial number of these changes in this article.
It would be fair to say that these changes will impose a substantially onerous obligation on Franchisors, bearing in mind that a breach of the Franchising Code will be a breach of the Trade Practices Act which could lead to legal action by the ACCC against the Franchisor.  

As is always the case, the legal environment around this issue is not black and white, so you need to be very careful when issuing Franchise documentation from 1 March 2008. For advice on this or any other business issue you may be facing, please give us a call on 8296 6222.