The 2025 Franchising Code of Conduct

The Competition and Consumer (Industry Code - Franchising) Regulations 2024, were made on 5 December 2024 and come into effect on 1 April 2025. You can read the regulations here.

As foreshadowed when the Exposure Draft was released in October 2024, the 2025 Franchising Code of Conduct (the 2025 Franchising Code) has been remade as part of the regulations to the Competition and Consumer Act 2010 (Cth). Consequently, the provisions of the 2025 Franchising Code will be referred to as sections.

Importantly, franchisors will (subject to some exceptions, such as the restraint provisions) generally have until 1 November 2025 to comply with the new requirements for franchise agreements and disclosure documents (aligning with the annual update timetable for disclosure documents).

Transitional Provisions

The transitional provisions are contained in sections 97 to 101 of the 2025 Franchising Code.

2025 Code generally applicable to franchise agreements entered into on or after 1 April 2025

Subject to the transitional provisions and some exceptions referred to below, section 97 provides that the 2025 Franchising Code applies to:

(a) a franchise agreement entered into, transferred, renewed or extended on or after 1 April 2025, and

(b) conduct engaged in on or after 1 April 2025, in relation to such an agreement.

Section 98(1) of the 2025 Franchising Code makes it clear that the regulations in force prior to 1 April 2025 (the current Franchising Code) will apply to:

(a) a franchise agreement entered into before 1 April 2025, until that agreement is terminated, otherwise ceases to exist, or is transferred, renewed or extended; and

(b) conduct relating to such an agreement, engaged in on or after 1 April 2025.

Section 98(2) provides that the conduct referred to in section 98(1)(b) above, is not conduct relating to the transfer, renewal or extension of the franchise agreement. Conduct that relates to the transfer, renewal or extension of a franchise agreement entered into prior to 1 April 2025 will be caught by the 2025 Franchising Code.

Consequently, the 2025 Franchising Code will not apply to all franchise agreements, and in particular, in general, the current Franchising Code provisions will apply to franchise agreements entered into prior to 1 April 2025.

In addition, while the 2025 Franchising Code will on its face apply to franchise agreements entered into on or after 1 April 2025, further transitional provisions mean that franchise agreements entered into between 1 April 2025 and 31 October 2025, will not necessarily comply (or be required to comply) with all of the provisions of the 2025 Franchising Code.

A further exception is that section 78 of the 2025 Franchising Code is applicable to franchise agreements entered into, transferred, renewed or extended on or after 1 January 2015. (Section 78 gives the Ombudsman power to publish a franchisor's refusal to engage in an ADR process.)

Section 43 - Compensation and Section 44 - Reasonable Opportunity for Return apply 1 November 2025

Section 97(3) of the 2025 Franchising Code provides that sections 43 and 44 do not apply to an agreement entered into, transferred, renewed or extended before 1 November 2025.

Section 61 - Specific Purpose Funds - obligations for funds other than marketing or cooperative funds commence 1 November 2025

Sections 97(4), 97(5) and 97(6) of the 2025 Franchising Code provide that the obligations contained in the 2025 Franchising Code relating to "specific purpose funds" are limited to marketing funds or cooperative funds, before 1 November 2025.

Further, section 100 of the 2025 Franchising Code provides that from 1 April 2025 to 31 October 2025, a fund administrator is deemed to have complied with subsections 32(2), 61(2), 61(3) and 61(4) of the 2025 Franchising Code if the fund administrator has complied with subclauses 15(2) and (4), 31(3), 31(2) and 31(4) respectively of the Current Franchising Code. 

Consequently, any obligations which apply to a specific purpose fund other than a marketing fund or a cooperative fund will commence on 1 November 2025.

Section 20 - Significant Capital Expenditure - obligations to include the information in 
item 14(1A) or 14(1B) commence 1 November 2025

Section 97(7) of the 2025 Franchising Code provides that a disclosure document created before 1 November 2025 will not be required to include the new section 20 information relating to Significant Capital Expenditure.

As has generally been my experience with the Franchising Code, its application is rarely straight forward.

Section 43 - Compensation for Early Termination

Section 43 of the 2025 Franchising Code contains obligations in relation to compensation if a franchise agreement is ended early. (Provisions for compensation for early termination are already included in the current Franchising Code in relation to new vehicle dealership agreements.)

There have been a number of amendments made to this section from the version contained in the Exposure Draft.

Firstly, the section has been split between general franchise agreements and new vehicle dealership agreements. Section 43 applies to a franchise agreement that is not a new vehicle dealership agreement. Section 45 applies to a new vehicle dealership agreement. (The Exposure Draft contained one section that covered all agreements).

Secondly, the buy back or compensation provisions in section 43(3) have been limited so that they are only applicable if the franchisor (a) withdraws from the Australian market; (b) rationalises its networks in Australia; or (c) changes its distribution models in Australia. (The Exposure Draft contained a broader compensation model).

Thirdly, the things to be included in the compensation provision and listed in Section 43(4) have been limited (as compared to the Exposure Draft). 

Fourthly, a failure to comply with the section may result in a maximum fine of 600 penalty units. The Exposure Draft proposed a section 17 penalty (section 45 includes a section 17 civil  penalty).

Importantly, section 43 principally relates to early termination because the franchisor (a) withdraws from the Australian market; or (b) rationalises its networks in Australia; or (c) changes its distribution models in Australia. It does not relate to early termination of a franchise agreement in general.

Section 44 - Reasonable Opportunity for Return 

Section 44(2) of the 2025 Franchising Code provides:

A franchisor must not enter into a franchise agreement unless the agreement provides the franchisee with a reasonable opportunity to make a return, during the term of the agreement, on any investment required by the franchisor as part of entering into, or under the agreement.

As I set out in my previous article, the Explanatory Statement released with the Exposure Draft explains that what is a "reasonable  opportunity" will be specific to the terms of the franchise agreement, the costs paid, and the length of the franchise agreement. 

Importantly, there is not an obligation to guarantee that a franchisee will make a reasonable return on investment during the term of the franchise agreement. It is likely, that in general, the length of the franchise agreement will determine whether the franchisee has had a reasonable opportunity to make a reasonable return on investment.

Similarly to section 43, section 44 is limited to franchise agreements that are not new vehicle dealership agreements. (Section 46 of the 2025 Franchising Code applies to new vehicle dealership agreements.)

Also, like section 43, a failure to comply with the section may result in a maximum fine of 600 penalty units. The Exposure Draft proposed a section 17 civil penalty (section 46 includes a section 17 civil  penalty).

Section 61 - Specific Purpose Funds

As foreshadowed and included in the Exposure Draft, the use of the terms "marketing funds" and "cooperative funds" has been replaced with the term "specific purpose funds".

The term has been broadened to capture specific purpose funds used by a franchise network in addition to marketing and cooperative funds. A recent example which I have come across when reviewing franchise agreements, is the use of a "conference fund", where franchisees are required to pay a monthly amount into a separate fund to cover conference expenses.

While section 61 is substantially the same as clause 31 of the Current Franchising Code, its application will be broadened to include any "specific purpose fund", such as the conference fund referred to.

Section 20 - Significant Capital Expenditure

Section 20(4) of the 2025 Franchising Code provides that a disclosure document must state:

whether the franchisor will require the franchisee to undertake significant capital expenditure in relation to the franchise business during the term of the franchise agreement.

Currently, the provisions in relation to Significant Capital Expenditure are included in clauses 30 and 30A of the Current Franchising Code (clause 30A is reflected in section 47 of the 2025 Franchising Code).

Under the 2025 Franchising Code, from 1 November 2025 franchisors will be required to include in the disclosure document a positive statement about significant capital expenditure at the time that the franchise agreement is entered into.

This is likely to result in larger franchisors (who require ongoing upgrades of their sites) to always include a statement in their disclosure documents that significant capital expenditure will be required.  As a result, the inclusion of the information will, in my view, be meaningless.

Section 42 - Restraint of Trade

As foreshadowed in the Exposure Draft, section 42 of the 2025 Franchising Code (section 41 of the Exposure Draft), prohibits a franchisor from entering into a franchise agreement that includes in the franchise agreement (or other document specified in section 42), a restraint which would apply in the circumstances set out in section 42, namely:

(a) the franchise agreement expires; and
(b) the franchise agreement contained an option for the franchisee to renew or 
extend the agreement; and
(c) before the expiry, the franchisee had given written notice to the franchisor 
seeking to renew or extend the agreement on substantially the same terms 
as those:

(i) contained in the franchisor’s current franchise agreement; and
(ii) that apply to other franchisees or would apply to a prospective 
franchisee; and

(d) before the expiry, the franchisee met any conditions contained in the 
franchise agreement that were required to be met by the franchisee to 
renew or extend the agreement; and
(e) immediately before the expiry, the franchisee was not in serious breach of 
the agreement or any related agreement; and
(f) the franchisee had not infringed the intellectual property of, or a 
confidentiality agreement with, the franchisor during the term of the 
agreement; and
(g) the franchisor did not renew or extend the agreement; and
(h) either:

(i) the franchisee claimed compensation for goodwill because the 
agreement was not renewed or extended, but the compensation given 
was merely a nominal amount and did not provide genuine 
compensation for goodwill; or
 (ii) the agreement did not allow the franchisee to claim compensation for 
goodwill in the event that it was not renewed or extended.

In addition to section 42, section 67 of the 2025 Franchising Code (which is applicable to franchise agreements entered into on or after 1 April 2025) provides that:

a franchisor must not rely on, or purport to rely on a restraint of trade clause that would apply in the circumstances mentioned in section 42.

A failure to comply with either section 42 or section 67 may result in a maximum fine of 600 penalty units.

Importantly, sections 42 and 67 apply from 1 April 2025.  Consequently, most franchise agreements will need to be amended before 1 April 2025 to take into account these provisions.

Sections 57 and 58 - Franchisor Termination

Also as foreshadowed in the Exposure Draft, the current clause 29 termination provisions have been split into two sections, section 57 "Termination by franchisor with 7 days' notice on grounds for which franchisee may not notify dispute" and section 58 "Termination by franchisor on grounds for which franchisee may notify dispute"

I note that the proposed subsection (g) (relating to a wage theft offence under the Fair Work provisions) to the previous version of section 57 (section 54 of the Exposure Draft), has been removed. 

As set out in my previous article reflecting on the termination provisions of the Exposure Draft, it is unlikely that the introduction of further complexity to the current clause 29, will "simplify" the franchisor termination process.

While, ultimately, only three circumstances:  

(a) the franchisee voluntarily abandons the franchised business or the franchise relationship;
(b) the franchisee operates the franchised business in a way that endangers public health or safety;
(c) the franchisee acts fraudulently in connection with the operation of the franchised business;

are grounds for which the franchisee may notify a dispute, the requirement that a franchisor provide 7 days' notice of termination on the grounds set out in section 57 (with an ability to require the franchisee to cease operation of the business) is still, in my view, unnecessarily unwieldy.

Importantly, sections 57 and 58 of the 2025 Franchising Code apply from 1 April 2025.

Takeaways

The 2025 Franchising Code will come into effect on 1 April 2025.

• Generally, the 2025 Franchising Code will apply to franchise agreements entered into on or after 1 April 2025;
• Generally, franchise agreements entered into before 1 April 2025 will be governed by the Current Franchising Code (or any other regulations applicable to the franchise agreement);
• Most of the provisions which require amendment to a franchisor's current franchise agreements and disclosure documents will not come into effect until 1 November 2025.
• Section 42 (restraint of trade prohibition) will come into effect on 1 April 2025.
• Sections 57 and 58 (Franchisor Termination on grounds) will come into effect on 1 April 2025.

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.