What is the Franchising Code?

The Franchising Code of Conduct (the Franchising Code) is a mandatory industry Code that forms part of the Australian Consumer Law. It is the primary law governing the relationship between franchisors and franchisees in Australia. The Franchising Code sets out numerous legal requirements of franchisors and franchisees, including with respect to disclosure, contract formation, good faith, termination, and a lot more. This article delves into who the Franchising Code applies to, what it contains, and how it may change in the future. 

Who does the Franchising Code apply to? 

The franchising code applies to ‘participants’ in franchising. Clause 2 sets out the purpose of the Franchising Code. It provides that 

The purpose of this code is to regulate the conduct of participants in franchising towards other participants in franchising.

The use of the word ‘participant’ is no doubt intentionally broad. The Code therefore applies to all contracting parties to franchise agreements, including guarantors and responsible managers. 

The broad definition of ‘franchise’ as contained in the franchising code also means it applies to master franchisees and master franchisors. 

When does the Franchising Code apply? 

The Franchising  Code governs how parties to a franchise agreement may conduct themselves: 

  • before entering into the franchise agreement;
  • during the term of the franchise agreement; and 
  • upon termination of the franchise agreement. 

In parties, participants in franchising should be mindful the obligation of good faith applies during the termination of a franchise agreement, and thereafter. 

Does the Franchising Code define ‘franchise’?

The Franchising Code includes a definition of ‘franchise agreement’ at clause 5. Anyone who has entered into a contract that meets this definition is subject to the Franchising Code, even if the contract in question is called something else. We examined this definition in our prior article here. 

What does the Franchising Code cover? 

The Franchising Code is comprehensive. It contains 72 clauses and one annexure. Some of the most important provisions include: 

  1. The obligation of good faith;
  2. The prescriptive dispute resolution procedure;
  3. The obligations of franchisors to provide disclosure, and abide by disclosure periods;
  4. The rights of franchisors to terminate in certain circumstances; 
  5. The franchisors obligations when operating a marketing fund; and 
  6. The form of the prescriptive disclosure document, which is found at annexure A.

What is the status of the Franchising Code?

The Franchising Code is binding law. A party who breaches it can be liable to civil penalties, and a breach of the Code can form the basis of a civil claim. The Franchising Code, however, is set to sunset in April 2025. At this stage, it is not entirely clear whether the existing Franchising Code will be amended and continue in force, or replaced by something else altogether. With the franchising law currently in a state of flux, it is important for those in the franchising industry to keep abreast of any legal developments. 

Key Takeaways

  1. The Franchising Code is a mandatory industry code
  2. The Franchising Code is far reaching in its application and scope
  3. The current Franchising Code is set to sunset in April 2025. It may be updated or replaced altogether. 

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