Every year, franchisors diligently update franchise numbers, financial statements and establishment costs as part of their annual Disclosure Document review.
Yet one of the most commonly overlooked compliance obligations has nothing to do with financial reporting or accounting.
It’s privacy.
Specifically, the obligations relating to former franchisees under the Franchising Code of Conduct.
We’ve lost count of the number of Disclosure Documents we’ve reviewed where the former franchisee schedule has simply been copied from the previous year, without anyone stopping to ask whether the required notification process has actually been followed.
Unfortunately, that’s a risky assumption.
Why are former franchisees included at all?
The Franchising Code is designed to promote informed decision-making by prospective franchisees.
One way it does this is by allowing prospective franchisees to contact former franchisees and ask about their experience operating within the network.
Former franchisees can often provide valuable insights about operating the business, the support provided by the franchisor and the practical realities of running the franchise.
For that reason, the Disclosure Document generally contains information about former franchisees who have left the system within the prescribed period.
However, that transparency is balanced against the former franchisee’s right to privacy.
The notification requirement
Before a franchisor discloses a former franchisee’s personal information to a prospective franchisee, the Code requires an important process to be followed.
At least 14 days before the information is disclosed, the former franchisee must be notified in writing that:
- their personal information may be disclosed to prospective franchisees;
- they may request that their personal information not be disclosed; and
- if they make that request within the prescribed period, their personal information must not be disclosed.
The franchisor must also remain neutral throughout the process.
In other words, this isn’t an opportunity to persuade the former franchisee to stay on the list or explain why disclosure would be helpful.
The former franchisee is entitled to make that decision themselves.
What happens if they opt out?
If the former franchisee asks for their personal information not to be disclosed, the franchisor must remove that personal information from the Disclosure Document.
Many franchisors are surprised by this.
The obligation isn’t simply to ask the question.
The Code requires the franchisor to respect the former franchisee’s decision.
That means your annual Disclosure Document update isn’t simply about checking whether the list of former franchisees is accurate.
It’s also about checking whether each person has been given the required opportunity to opt out.
Why this often gets missed
Unlike financial statements or franchise numbers, there isn’t usually an obvious reminder that this process needs to occur each year.
Instead, the former franchisee section is often rolled over from the previous year’s Disclosure Document without further consideration.
That’s understandable.
When you’re updating dozens of disclosure items, it’s easy to focus on the commercial information and overlook a procedural privacy obligation.
However, overlooking it doesn’t remove the obligation.
A practical annual process
When preparing your annual Disclosure Document update, we generally recommend working through the following steps:
✔ Identify every former franchisee whose details are proposed to be included.
✔ Confirm whether the required written notification has already been given.
✔ If not, issue the notification well before the Disclosure Document is finalised.
✔ Allow sufficient time for the former franchisee to respond.
✔ Remove any personal information where the former franchisee exercises their right to opt out.
✔ Keep records of the notifications issued and any responses received.
Treating this as part of your annual compliance checklist makes the process straightforward and avoids unnecessary last-minute amendments.
Don’t leave it until October
Like many aspects of annual franchising compliance, timing matters.
If your Disclosure Document needs to be updated by 31 October, leaving the former franchisee notification process until the final week can create unnecessary pressure.
Starting early gives former franchisees an opportunity to respond and allows sufficient time to finalise the document before the deadline.
How Magnolia Legal can help
At Magnolia Legal, we don’t simply update dates and financial statements.
When we undertake an annual Disclosure Document review, we work through the practical compliance issues that are easily overlooked—including the obligations relating to former franchisees, privacy and disclosure under the Franchising Code.
The result is a Disclosure Document that doesn’t just look current—it is current.
If your annual compliance update is approaching and you’d like someone to ensure nothing slips through the cracks, we’d be delighted to help.