Australia’s Franchising Code of Conduct is getting a makeover thanks to the new Competition and Consumer (Industry Codes – Franchising) Regulations 2024—a little early Christmas present from the federal government! With the current Code set to commence in April 2025, franchisors will need to get ready to make changes.
Despite grand plans for a licensing regime and a substantial review process, the changes being implemented are ultimately not drastic, but will require some changes to processes and documentation by franchisors.
What are the transitional provisions?
The new Franchising Code of Conduct includes transitional provisions to help franchisors adjust to the changes. For the most part, the changes won’t become binding until 1 November 2025. These measures aim to give franchisors enough time to align their practices with the updated Code.
In particular, disclosure documents created in conformity with the current code and given to prospective franchisees before 1 April 2025 with the purpose of complying with a franchisor’s disclosure obligation are taken as satisfactory. Disclosure documents given after 1 April 2025 and prior to 1 November 2025, however, will generally need to be in accordance with the new code unless exemptions apply.
Franchisors who are seeking to issue disclosure documents after 1 April 2025 will need to update their documents before issuing them.
What are the Changes?
The key changes are as follows:
Section | Change | What it means for franchisors |
General – Disclosure | The Key Facts Sheet is being scrapped. Some minor additions are being added to the Disclosure Document. | Franchisors will not need to prepare any further Key Facts Sheet but still need to complete the disclosure document, making some minor changes to comply with the new form. |
15 | A new purpose has been included:
The purpose of this Code is to: (a) regulate the conduct of participants in franchising towards other participants in franchising, in particular to address the imbalance of power between franchisors and franchisees and prospective franchisees; and (b) improve standards of conduct and practice in the industry to minimise disputes through: (i) better disclosure of information, to inform decision-making; and (ii) setting out requirements for franchise agreements; and (c) provide a fair and equitable dispute resolution procedure for disputes arising under this Code or a franchise agreement. |
Where the Code itself shall state one of its purposes is to ‘address the imbalance of power’, a consequence could be that provisions are interpreted in the context of that purpose, i.e. in a more ‘franchisee friendly’ manner. This could apply, for example, to the statutory obligation of good faith, and termination obligations. |
17 | The Code penalty provisions now include higher civil penalties for non-compliance. The new code specifies the maximum pecuniary penalty that applies for contravention of certain civil penalty provisions of the Code by a body corporate. | Franchisors face stricter financial risks for breaching obligations. |
18 | Broadened definition of ‘Good Faith’, this is a broad obligation that aims to strengthen the commercial dealings between the parties, particularly given the unique, interdependent relationship and imbalance in bargaining power that typically exists in franchising. | Franchisors must ensure transparency and honesty in all interactions, including negotiating and operating agreements. |
20-21 | Requires a disclosure document to include additional information about whether a franchisor will require the franchisee to undertake significant capital expenditure, including the justification for the expenditure. | Franchisors should ensure their disclosure documents contain all the required information about capital expenditure.
Non-compliance carries significant penalties. |
23-24 | Now allow prospective franchisees to opt out of receiving a copy of a disclosure document and the Code from the franchisor if the franchisee has, or has recently had, another franchise agreement with the franchisor that is the same or substantially the same as the new franchise agreement and the business that is the subject of the new franchise agreement is the same or substantially the same as under the other agreement. | To ensure adequate protections for prospective franchisees, the opt-out must be in writing and franchisees will still have the ability to request a disclosure document at any point. |
31 | There has been a move away from the use of the concepts of ‘marketing’ and ‘cooperative funds’ to the use of a single concept – ‘specific purpose funds’. | Wording will need to be updated to reflect the terminology of the Code. Franchisors should consider if they have additional cooperative funds (beyond their marketing funds) to which the Code applies. |
36 | The franchisor must notify the franchisee in writing at least 6 months before the end of the agreement if they do not intend to extend the agreement or enter into a new one. If the agreement is less than 6 months, the notification period is at least 1 month. This is in addition to the requirement for the franchisor to notify the franchisee whether they intended to extend the agreement or enter into a new one within the same time frame. | The new requirement adds an obligation for the franchisor to provide notice if they do not intend to continue the franchise relationship |
42, 67 | A franchisor is now expressly prohibited from including a restraint of trade clause in a franchise agreement if:
In essence, it adds protections for franchisees against non-renewal without fair compensation or legitimate reasons. |
Substantive obligation on the franchisor to ensure enforcement is consistent across the Code. A
franchisor that breaches the requirements in section 42 is liable to a civil penalty of up to 600 penalty units. |
43 | If a franchisor ends a franchise agreement early—whether due to exiting the market, changing distribution models, or shutting down the franchise network—they must compensate franchisees for their losses. This includes covering unsellable stock, specialty equipment, lost profits, and winding-up costs. The franchise agreement must clearly outline how compensation will be calculated for lost direct and indirect revenue, unamortised capital expenditure requested by the franchisor, missed opportunities to sell goodwill, and winding-up expenses. These rules provide stronger protections for franchisees and can have major implications for franchisors. | Franchisors should add this clause to their franchise agreement. |
44 | Franchisees must have a reasonable opportunity to make a return on investment required by the franchisor as part of entering into, or under, a franchise agreement. | For longer term franchises, this should not be problematic, but should still be considered by Franchisors. |
47 | The franchisor must discuss with the franchisee or prospective franchisee any significant capital expenditure disclosed in the disclosure document and the circumstances in which the franchisor considers that the franchisee or prospective franchisee is likely to recoup the expenditure. | Franchisors must not enter into, renew, or extend a franchise agreement unless they have discussed this with the prospective franchisee or franchisee |
50-53 | Repayment obligations after termination during the cooling-off period have been clarified. | Franchisors must provide clear processes for cooling-off period terminations and timely repayments if agreements are terminated. This will simplify the grant process for multi-unit holders. A written opt-out notice will need to be prepared in this instance. |
63 | The Code now provides that a franchisor MUST NOT disclose a former franchisee’s personal information unless:
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Franchisors will need to incorporate this into their practice – ideally, the notice should be sent as part of the exit documentation. |
74-78 | Enhanced ADR processes and ASBFEO will now have the power to name franchisors who are parties to a dispute and who have refused to engage in an ADR process or withdrawn from an ADR process. | To avoid being ‘named and shamed’, franchisors should ensure they proactively and in good faith participate in all mediations |
93 | Franchisors are required to:
This requirement applies to franchisors with information on the Register under section 92 or clauses 53C or 53D of the old Code, and to master franchisors in systems with two or more subfranchisors. Under subsection 93(3):
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Franchisors must ensure their Register information is accurate and kept up-to-date, submitting required details annually.
If franchisors had elected to publish their disclosure documents, this should be deleted. |
Schedule 1 | The disclosure document, incorporated into the Code at Schedule 1, has been subject to some minor tweaks to give effect to the above. In particular, the requirements of disclosure of significant capital expenditure are now clearer. | Franchisors will need to update their disclosure document and carefully consider potential capital expenditure. |
What Do Franchisors Need to Do to Follow the Changes?
Franchisors should focus on the following actions to align with the updated Code:
- Review Processes: Update internal policies and ensure you are trained on the changes, particularly those related to good faith and dispute resolution, and the new notification requirements.
- Update Disclosure Documents: Update your disclosure document prior to April 2025.
- Revise and Update Agreements: Ensure agreements include the updated terms for termination, dispute resolution, and significant capital expenditures, as well as correct references to the Code.
- Update the disclosure suite – it sounds simple, but where the Code itself is a disclosure item, from April 2025 Franchisors should ensure they are using the new version.
Will I need to update my Franchise Documents?
Short answer, yes, but the changes are not substantial.
General reminders:
- Franchisors must give a prospective franchisee a copy of the information statement published on the Australian Consumer and Competition Commission’s (ACCC) website before providing the franchise agreement.
- The Code provisions concerning the Franchise Disclosure Register remain in place, so Franchisors will still need to comply with those, however Franchisors may no longer elect to publish the disclosure document (very few did).
- The Code continues to restrict a franchisor from entering into a franchise agreement that requires franchisees to pay certain legal costs, but includes an update under paragraph 38(2)(c) to provide that in exceptional circumstances where a franchisor and franchisee agree the franchisor can pass on the legal costs of preparing the franchise agreement, the fixed sum of costs must not exceed reasonable and genuine legal costs. Accordingly, the documentation fee should reflect legal fees actually paid.
Key Takeaways
At a high level, the amendments to the franchise agreement will include:
- Deletion of all references to key facts sheet;
- Inclusion of the new mandated clause about compensation if the Franchisor ends the Agreement early;
- Update wording to reflect the terminology of the new Code, eg
- “specific purpose fund” to apply instead of Marketing or Advertising fund, but which will now encompass other specific purpose funds such as conference and IT funds, plus also a requirement to disclose whether any of the funds will be spent on the franchisee’s specific business
- “Clauses” will now be “sections” and some numbering will change.
- The terms of the franchise agreement must be consistent with the level of capital investment required so franchisees have a reasonable opportunity to get a return on the investment; an acknowledgement to that effect should be included;
- The restraint should be scrutinised in light of the new provisions.
Interested to know more?
Find both the New Franchising Code of Conduct and the ‘Explanatory Statement 2024 Franchising Code of Conduct’ here.
Control F these search terms on the ‘Explanatory Statement 2024 Franchising Code of Conduct’ for further detail on changes made, to help you digest what has changed:
- “Now includes”
- “Expands on”
- “Updates clause”
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