Update on Licensing Regime proposed for Franchisors

The Federal Government is taking proactive steps to improve the franchising sector by considering a licensing regime for franchisors. As the first step, the Treasury has released a consultation paper, available here. This move comes as part of the response to a recommendation from the Independent Review of the Franchising Code of Conduct (the Review), which highlighted ongoing challenges in the industry. We first wrote about this in our prior article here

Why a licensing regime? 

To tackle ongoing issues plaguing the franchising industry, the Federal Government has established the Licensing Taskforce, with the aim of addressing persistent harms in the sector. The Taskforce is calling on interested parties to submit responses to a consultation paper by December 8, 2024 (in five days!), as part of the broader effort to create a fairer and more transparent franchising environment.

The franchising sector has faced various challenges over the years, many stemming from an imbalance of power between franchisors and franchisees. The Review identified several issues, including information asymmetry, misunderstandings around goodwill, and concerns about restraint of trade clauses and the obligation to act in good faith under the Franchising Code. Additionally, the Review emphasised that these problems often shift over time, with different issues emerging at different stages of a franchise system’s lifecycle. This has highlighted the need for reforms that adapt to the changing nature of franchising relationships.

The Paper

The consultation paper is designed to explore the potential functions of a licensing regime for franchisors, with a focus on five key areas:

  1. Regulatory Oversight – How can the regulatory framework be strengthened to ensure compliance and fairness in the sector?
  2. Dispute Resolution – What processes can be put in place to make resolving disputes more efficient and accessible?
  3. Disclosure of Information – How can franchisors better share crucial information with potential franchisees to foster transparency and trust?
  4. Business Model Preconditions – What requirements should be in place for franchisors before they can operate in the sector?
  5. Education and Resources – What resources and educational initiatives are needed to support both franchisors and franchisees in navigating the industry?

The consultation paper asks for feedback on these areas, encouraging stakeholders to offer their insights into how a licensing system could address existing problems and promote a healthier franchising environment.

Addressing Persistent Harm

One of the core issues raised in the consultation paper is the imbalance of power between franchisors and franchisees. This dynamic can lead to a range of challenges, from disputes over financial matters to concerns about franchisor control. A licensing system could help level the playing field by ensuring franchisors meet specific standards and comply with regulations, which would benefit both franchisees and the broader industry.

The Review also pointed out that better education and clearer guidelines around aspects like marketing funds, goodwill, and voluntary arbitration could help resolve misunderstandings and build stronger, more collaborative franchise systems. A licensing regime may provide the structure needed to implement these improvements effectively.

How You Can Get Involved

The Taskforce is eager to hear from anyone with an interest in the franchising sector, whether you’re a franchisor, franchisee, industry expert, or consumer. Your input could play a crucial role in shaping the future of franchising in Australia. This initiative marks a significant step toward improving the fairness and transparency of the franchising sector, addressing long-standing issues, and promoting a better experience for both franchisors and franchisees. If you’re involved in franchising, now is the time to have your say!

Magnolia Legal will, of course, be following the issue closely.

 

Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply