2023 Review of the Franchising Code of Conduct

On 23 August 2023, the Government released the Consultation Paper for the 2023 review of the Franchising Code of Conduct. 

By releasing the Consultation Paper, the Government is seeking input from various stakeholders, including franchisors, franchisees, and industry experts. 

Why is the Franchising Code of Conduct being reviewed?
Terms Of Reference
Consultation Paper
Takeaways

Why is the Franchising Code of Conduct being reviewed?

Four reviews of the Franchising Code are due in the next 12 months. In order to avoid duplication of effort for stakeholders, the 2023 review of the Franchising Code of Conduct will take into account all four reviews.

1- The Franchising Code is due to Sunset

The Franchising Code is due to sunset on 1 April 2025.

All legislative instruments are subject to the sunsetting provisions contained in the Legislation Act 2003 which provide that legislative instruments that are not exempted will be automatically repealed after about 10 years, unless action is taken to preserve them.

The purpose of sunsetting provisions is to ensure that legislative instruments are kept up to date and remain in force for so long as they are needed.

If a legislative instrument is due to sunset, the appropriate Government agency and department will generally:

1. review the legislative instrument to assess whether it is still needed and is fit-for-purpose;
2. after this review, decide whether the instrument should (amongst other things) be repealed or replaced.

The July 2020 "Guide to managing the sunsetting of legislative instruments" provides in relation to the design of a fit-for-purpose review:

"As a general principle, the review should result in a clear finding as to whether the law contained in the sunsetting instrument continues to have a purpose. If so, the review must identify any changes that are required to ensure that the replacement instrument is current, legally effective, drafted to a high standard and reflects the outcomes of appropriate consultation".

In accordance with the sunsetting requirements referred to above, the first Term of Reference of the 2023 review of the Franchising Code provides that the review will have regard to the general fitness for purpose of the Franchising Code.

2 - Statutory Review of Part 5 of the Franchising Code (relating to New Vehicle Dealership Agreements)

Part 5 of the Franchising Code regulates new vehicle dealership agreements.

Clause 58 of the Franchising Code provides that the Minister must cause a review of the operation of the Part 5 amendments to be conducted before 1 April 2024.

The third Term of Reference of the 2023 review of the Franchising Code provides that the review will have regard to the role of the Franchising Code in regulating the automotive sector.

3 - Statutory Review of Part 5A of the Franchising Code (relating to the Franchise Disclosure Register)

Part 5A of the Franchising Code regulates the Franchise Disclosure Register. 

Clause 53J of the Franchising Code provides that the Minister must cause a review of the operation of Part 5A to be undertaken. The review must commence on or after 15 November 2023 (being 12 months after the operation of the Franchise Disclosure Register).

The fifth Term of Reference (set out below) provides that the 2023 review of the Franchising Code will have regard to the provisions in the Franchising Code related to the Franchise Disclosure Register. However, given that the review "must commence on or after 15 November 2023" the Consultation Paper notes that "there will be a further opportunity to provide feedback on the operation of the Register in November this year when the Register has been publicly available for one year". 

4 - Post Implementation Review of the 2021 amendments to Part 5 of the Franchising Code (relating to New Vehicle Dealership Agreements).

A Post Implementation Review evaluates whether the implemented legislation is operating as intended and is meeting its objectives.

Stakeholder consultation is a key part of a Post Implementation Review.

The third Term of Reference of the 2023 review of the Franchising Code provides that the review will have regard to the role of the Franchising Code in regulating the automotive sector, including the effectiveness of the 2020 and 2021 reforms.

2023 Review of The Franchising Code - Terms of Reference

The Terms of Reference published on 15 August 2023 provide that the 2023 review of the Franchising Code of Conduct will have regard to the following:

1. Noting that the Franchising Code is due to sunset on 1 April 2025, the general fitness for purpose
   of the Franchising Code.
2. The role of the Australian Competition and Consumer Commission and the Australian Small
   Business and Family Enterprise Ombudsman in supporting enforcement and dispute resolution
   under the franchising regulatory framework.
3. The role of the Franchising Code in regulating the automotive sector, including:
    
   • whether Franchising Code protections available to automotive franchisees should be
     extended beyond new car dealerships (for example to truck, motorcycle, and farm
     machinery dealerships).
     
     
   • the effectiveness of 2020 and 2021 reforms which:
     
     ▪ provided for multi-party dispute resolution and clarified that agency models are
     captured by the Franchising Code.
     
     ▪ created new obligations relating to compensation in the event of early
     termination, and franchisees’ capacity to make a return on investment.
     
     ▪ provided additional protections to apply at the end of a franchise term including
     notification requirements and processes for winding down.
     
     ▪ restricted the franchisors’ capacity to require a franchisee to undertake
     significant capital expenditure.
     
     ▪ clarified the operation of the Franchising Code obligation to act in good faith in
     relation to new car dealerships.
     
     
4. The impact of 2022 reforms which increased certain penalties available under the Franchising Code to: the greater of $10 million, three times the benefit obtained, or 10 per cent of annual turnover.
   
   
5. From 15 November 2023, which will mark when the Register has been publicly available for one year, provisions in the Franchising Code related to the Franchise Disclosure Register. 

2023 Review of the Franchising Code - Consultation Paper

The Consultation Paper released on 23 August 2023 has split the Key Issues to be examined into five categories:

1. The Scope of the Regulation
2. Before Entering into a Franchise Agreement
3. Enduring Obligations in Franchise Relationships
4. Ending a Franchise Agreement
5. Enforcement and dispute resolution

Each category contains a number of questions and considerations for submission. Submissions close on 29 September 2023.

Takeaways

The Franchising Code of Conduct is undergoing a further review.

The Government is seeking input from various stakeholders, including franchisors, franchisees, and industry experts. Submissions can be made to franchisingreview@treasury.gov.au. The closing date for submissions is 29 September 2023.

Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.