Franchising Code 2025 Exposure Draft

The Exposure Draft for the 2025 update of the Franchising Code of Conduct (which is expected to come into force on 1 April 2025) has been released by the Australian Federal Government (the Government).

The full copy of the Exposure Draft and the Explanatory Statement can be read here.

The Government is seeking views on the Exposure Draft, which should be submitted by 29 October 2024.

Background of the 2023 Code Review 

The 2023 Review of the Franchising Code of Conduct (the Code) focused on a number of 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.

The infographic below sets out the recommendations and Government findings relating to the Scope of the Regulation, which I will consider in this article. 

Remaking the Code

The Information Paper released with the Exposure Draft advises that the new Code will exist as a chapter within the Regulations, meaning that the clauses of the Code will now become 'Sections'.

In "remaking" the Code the use of "marketing funds" and "cooperative funds" as terms has been abandoned and replaced with the term "specific purpose funds". The Information Paper indicates that this change in term is intended to capture all relevant specific purpose funds.

In addition, under the Exposure Draft, a franchisor will be expressly prohibited from entering into a franchise agreement which includes a prohibited restraint of trade clause. I will consider this proposed amendment further when I consider the proposed amendments relating to Ending a Franchise Agreement.

Statement of Purpose

The proposed purpose of the Code (set out in the Section 14 of the Exposure Draft) is to:

• 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;
• improve standards of conduct and practice in the industry to minimise disputes through better disclosure of information, to inform decision making, and setting out requirements for franchise agreements; and
• provide a fair and equitable dispute resolution procedure for disputes arising under this Code or a franchise agreement.

The Explanatory Statement states that the intent of amending the purpose is to emphasise that the Code's purpose is to provide protection for franchisees and prospective franchisees.

Service and Repair Work

In its response to the 2023 Review of the Code, the Government indicated that it would clarify that service and repair work performed by Motor Vehicle dealerships is within the scope of the Code.

The definition of "Motor Vehicle Dealership" has been amended in the Exposure Draft to clarify that it captures service and repair work conducted by a motor vehicle dealership.

The Explanatory Statement further clarifies that the new definition does not capture service and repair businesses that are not part of a dealer-franchise business.

Reviews Every 5 Years

The 2023 Review of the Code recommended that reviews of the Code should be conducted in 5 year cycles. This allows certainty and reduces the costs of regulation borne by franchisors who are required to update their documents when the regulations change. 

In the last 3 years my experience has been that franchisors have been required to undertake significant amendments to their documents in response to both the 2021 amendments to the Code and the introduction of the Unfair Contracts regime. For some smaller franchisors, the financial burden of these amendments has been significant.

Section 11 of the Exposure Draft provides that a review of the Code must commence before 1 April 2030.

The Explanatory Statement clarifies that the Government anticipates that the second review (after the review conducted on 1 April 2030) will be conducted as part of the sunsetting process when remaking the Regulations.

As indicated in the Information Paper, there have been 8 amendments to the Code in the last 10 years. My concern with Section 11 of the Exposure Draft is that other than specifying that a review of the Code is not required to commence before 1 April 2030, there is no mechanism to ensure that reviews occur at appropriate regular intervals and do not occur more regularly than every 5 years.

Takeaways 

The new Code is expected to come into force on 1 April 2025.

The amendments to the Code arising from the review of the Scope of the Regulation reflect the Government's response to the 2023 Review. 

Any submissions to be made in relation to the proposed amendments must be submitted by 29 October 2024. 

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.