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Volume XI, Number 289

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Franchising Update | Parliamentary Joint Committee on Corporations and Financial Services: Main Changes from the Australian Federal Government Response

FRANCHISING CODE

On Thursday 21 August 2020, the Australian Federal Government released a report which sets out intended changes to the Franchising Code.  

In addition, the Government has indicated there will be some further consultation to finalise a number of matters. A steep increase to penalties for non-compliance (which will double) will likely push compliance up the list of priorities for franchisor's and, combined with the other anticipated changes, increase the disclosure of information to franchisees. Details regarding these changes, such as the potential registration process and new 'short-form' Key Disclosure Information Fact Sheet that will need to be provided to franchisees are not yet known.

SUMMARY OF KEY CHANGES

The main changes are: 

  • Penalties to double 

  • Increased disclosure (particularly around supply rebates and leasing arrangements) - a new 'short-form' Key Disclosure Information Fact Sheet to be required

  • Increased dispute resolution options (voluntary binding arbitration and conciliation) 

  • Franchisees will be able to group together in disputes (if the person conducting the dispute resolution determines a multi-party dispute is appropriate)

  • Franchisors will need to give seven days' notice to terminate in the 'special circumstances' prescribed by the Code (they can currently terminate immediately on written notice).

There are other changes regarding: 

  • Tightening of provisions and increased disclosures around significant capital expenditure 

  • Clarification of 'cooling off' rights and the 'disclosure period'

  • Franchisors can no longer charge franchisees for their legal costs (but can include this fee in their franchise fees)

  • Disclosure documents must be provided in electronic and hard copy format.

The Australian Federal Government has flagged that there will be further consultation with the franchising sector or further consideration regarding the following issues: 

  • A public register of franchisors 

  • Facilitating a negotiated early termination from a franchise by parties (including early exits by franchisees to reasonably constrain financial loss)

  • Unilateral variations of franchise agreement and subsidiary documents in the context of unfair contract terms legislation.

The table, attached here, sets out the main points (in some cases extracted directly) from the paper circulated by the Australian Federal Government on Thursday 20 August, 2020. The expected changes to the Franchising Code are highlighted in green the issues being further considered or not changed are highlighted in blue. 

Copyright 2021 K & L GatesNational Law Review, Volume X, Number 237
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About this Author

Anna Trist, Labor, Attorney, Corporate, Australia, KL Gates Law FIrm
Special Counsel

Ms. Trist is a senior corporate and commercial lawyer. Her particular focus is on franchising and licensing arrangements, disputes, and compliance. Ms. Trist's clients include numerous well-known Australian and international companies. She assists them with sensible legal and commercial solutions to franchising issues and general commercial advice. She has worked closely with franchisors, master franchisees and franchisees of almost 250 different franchising systems across a broad spectrum of industries.

Ms. Trist has an in-depth understanding of Australian franchising regulation...

61.3.9640.4381
Chris Nikou, Australia, Labor, Attorney
Practice Area Leader - Corporate & Transactional

Mr. Nikou has acted for major Australian and international companies and works closely with his clients, taking the time to understand their businesses and provide them with sound guidance and advice.

Mr. Nikou has acted in numerous merger and acquisition matters from detailed due diligence enquiries, asset and share sale agreements, joint ventures and contract negotiations. He also provides commercial advice on franchising and intellectual property issues and has been involved in expanding a number of Australia’s best known brand names both locally and overseas.

61.3.9640.4354
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