The report prepared by Dr Michael Schaper following his independent review of the Franchising Code was published on 8 February. This publication followed a period of consultation with franchise industry stakeholders and offers valuable insight into the potential future landscape of franchising law in Australia, particularly as the current Franchising Code is set to sunset in April next year.
In this article, we delve into the recommendations outlined in the report and discuss their potential impact on the sector. For those interested in exploring the complete report, it is available here. Fair warning though, it’s quite lengthy, so grab a cozy spot before diving in!
What is the Independent Review of the Franchising Code of Conduct 2023
We wrote about the report and its purpose in our prior article here. Ultimately, Dr Michael Schaper was appointed to conduct a review of the Franchising Code given its impending expiration. The review focuses on the general fitness for purpose of the current franchising code, the role of the ACCC and ASBFEO in supporting the franchise sector, and how laws impacting the franchise industry could be improved.
What does the Independent Review of the Franchising Code recommend?
The submission paper contains 23 recommendations and many implementation suggestions. At a high-level, Dr Schaper recommends the Franchising Code be improved, but not completely replaced or re-written. The following table summarises some key recommendations, and details how they will likely impact the sector.
| Recommendation | What will this mean for the franchising sector if the recommendation is adopted? |
| The Australian government should ensure the provision of more comprehensive, robust statistics about the franchising sector | Having more up to date and accessible statistics about the size and nature of the franchising industry in Australia will provide stakeholders with a better understanding of the sector. |
| The Franchising Code should be remade, largely in its current format subject to some specific improvements, including replacing outdated language, making certain provisions clearer, and updating definitions | The Franchising Code will not be replaced altogether. The improvements suggested will clarify certain grey areas in the current code, which will ultimately benefit the sector. |
| A clear statement of purpose should be incorporated into the Franchising Code | In his report, Dr Schaper noted the current purpose as contained in the Franchising Code led to confusion for franchisees as to the level of protection intended by its operation. A more accurate purpose provision will assist cure this. |
| The ‘new and improved’ Franchising Code should be subject to 5-yearly reviews | The Franchising Code has been subject to numerous amendments and updates in recent years, placing burden on franchisors to ensure they remain legally compliant. Have a fixed review period should provide for more stability in the sector. |
| Merge the Key Facts Sheet and Disclosure Document | The report found requiring franchisors to provide both of these documents to be of little benefit. Such a recommendation would simplify the disclosure process. |
| Renewing franchisees should be able to ‘opt-out’ of disclosure requirements and cooling off rights | This would simplify the renewal process for franchisees already familiar with their franchisors and the particulars of the franchise networks. |
| Provisions for compensation for franchisees in the event of early-termination by franchisors should be extended to apply to all franchise agreements | Currently applicable only to new vehicle dealership franchise agreements, this recommendation would help protect franchisees from the consequences of early termination at the hands of their franchisors, and assist dissuade franchisors from early termination. |
| Additional detail should be included in the Franchise Disclosure Register | The additional detail recommended included whether the franchisor offered binding voluntary arbitration, and any sanctions or court actions bought by regulatory bodies against the franchisor in the last 5 years. Making such information publicly available will enhance transparency. |
| Franchise systems should be encouraged, through education, to consult franchisees regarding any major change to the business model during the term of the franchise agreement | The report noted the issues that can arise when a Franchisor seeks to change the franchise system or franchise agreement, through amendment to the agreement itself or operation manuals. It also noted provisions entitling franchisors to make such changes could fall foul of Unfair Contract Terms (UCT) laws. Encouraging collaboration and consultation will reduce the likelihood of disputes arising, and of relevant provisions being found to violate the UCT laws. |
| Further work should be done to limit the use of unreasonable restraints of trade provisions in franchise agreements | In particular, the report suggested the ACCC should issue guidance on when a restraint provision may constitute an unfair contract term – this will help reduce the number of restraint-related disputes, which are common in the franchising sector. |
| The role of the ACCC should be tweaked to include being responsible for a comprehensive online government resource, developing best practice guidelines, and enforcing increased penalty provisions | In its submission, the ACCC acknowledged limitations with respect to its powers and abilities to investigate and take action against parties’ who have breached the Franchising Code. Implementing such regimes should assist reduce the likelihood of disputes arising, and mean the consequences will be more severe for those found to have breached the Franchising Code. |
| The role of the ASBFEO should be tweaked to enable franchisees to obtain low-cost advice prior to mediations, and provide the body with adverse publicity powers | These recommendations seek to address the power imbalance often seen in the context of franchise mediations, and make franchisors more accountable. |
| The scope of penalties under the Franchising Code and associated investigation powers and infringement notice regime in Part IVB of the Competition and Consumer Act (CCA) should be increased | The report called for all substantive obligations under the Code and in division 5 of Part IVB of the CCA should be penalty provisions. This will promote compliance with the Code, by making the consequences for not doing so more severe. |
Where does the report stand on the ACCC’s submission for the introduction of a Franchise Licencing Regime?
We wrote about the possibility of introducing such a regime here. In that article we noted there could be merit to such a regime, but warned it should not be introduced without some further testing, or via some sort of trial. Ultimately, it seems Dr Schaper agrees with our position that while a licensing regime could be of benefit to the industry, it should not be introduced without further examination. As set out in the report “a comprehensive analysis is needed before embarking on such a fundamental shift”. The report left the door open for such a change, urging further evaluation be conducted before any licensing regime is implemented. This then leaves the fate of a franchisor licensing regime largely in the hands of the Australian Government. If the recommendations made on this issue are adopted, we can expect to see further investigation and industry consultation conducted. For now, we can expect such a regime would not replace the Franchising Code, but coexist with it. Magnolia Legal will, of course, keep you updated.
Key Takeaways
If the report’s recommendations are adopted:
- The Franchising Code will remain the primary ‘law’ governing the sector, but will be improved.
- The role of the ACCC and ASBFEO will be expanded.
- A new simplified binding dispute resolution process will not be introduced (as was recommended by the ACCC in its submission). Instead, steps will be taken to improve the existing dispute resolution framework.
- The proposed Franchisor Licensing Regime remains a possibility, but more work needs to be done before it is implemented.
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