The Franchising Code of Conduct is a mandatory set of rules all Australian franchised businesses must abide by.
There are 3 main areas which are covered by the Franchising Code of Conduct (the Code):
- Franchise Agreements; and
- Dispute Resolution.
The disclosure document arguably forms the foundation to compliance with the Code by franchisors. The disclosure document includes information such as:
- details of all the current franchisees in the franchise system,
- details of the franchisees that have left the system in the last three years,
- details of any relevant legal action that is being taken against the franchisor, and
- the financial and business details of the franchisor.
At least 14 days before you enter into, renew or extend a franchise agreement or you pay a non-refundable deposit in relation to a franchise agreement, a franchisor must give you:
- an Information Statement,
- a copy of the Code,
- a disclosure document in the form set out in the Code,
- a franchise agreement in the form it is to be executed.
The Code requires that a franchisor provide you with certain rights in relation to franchise agreements, in particular:
- you have a 7 day cooling off period after the franchise agreement is signed, or after a franchisee has paid non-refundable money to the franchisor. If you decide to exercise your cooling off rights, the franchisor must give a refund of any payment the franchisee has made within 14 days. The franchisor does have the ability to deduct a reasonable amount incurred by the franchisor,
- the Franchisor is prohibited from preventing you from forming an association or from associating with other franchisees or prospective franchisees for a lawful purpose,
- the franchise agreement must not contain, or require you to sign a statement that releases the franchisor from general liability towards the franchisor,
- a franchise agreement must not contain, or require a franchisee to sign, a waiver of any verbal or written representation made by the franchisor,
- a franchise agreement must contain a dispute resolution clause which complies with the Code.
The Code sets out a detailed procedure for resolving disputes.
Step 1 – Written Notice of Dispute
The complainant, whether they are the franchisee or the franchisor, must write to the other party with details of the complaint. The [C]ode stipulates that the letter must include the following information:
- The nature of the dispute,
- The outcome the complainant wants, or the desired outcome, and
- What action the complainant believes will settle the dispute.
Step 2 – Direct negotiation between the parties
The Code mandates that before any other action is taken the parties to the complaint must endeavour to resolve the dispute between them.
Step 3 – Appointment of a mediator
If the parties have tried to resolve the dispute between them and have failed, after 21 days of the written notice of dispute being given, either party may refer the matter to a mediator.
Step 4 – Mediation
When mediation is required by a party, the Code stipulates that before any other action is taken the parties must engage in mediation.
This is just a brief overview of the Code and does not cover all of the Code’s provisions. Should you require any advice about the Code or the effect of the Code on your business, contact us so that we can assist you.