Australia: The Review of the Australian Franchising Code of Conduct - Key recommendations & what they could mean for you

Franchising Update (Australia)
Last Updated: 29 May 2013
Article by Judith Miller and Jennifer Tetstall

Major reforms, which could significantly impact all franchisors, are currently under review by the Australian Government.

On 17 May 2013, The Department of Industry, Innovation, Climate Change, Science Research and Tertiary Education released its report (Report) following an independent review of the Franchising Code of Conduct (Franchising Code).

The four month review, conducted by industry expert, Mr Alan Wein, has resulted in 18 recommended changes to the Franchising Code dealing with disclosure, good faith, dispute resolution and the introduction of fines and penalties.

If these recommendations are adopted by the Government there could be significant advantages and disadvantages for franchisors. The recommendations of most consequence include:

  • Replacing the existing requirement that a foreign or master franchisor provide a long-form disclosure document with a short-form disclosure document.
  • The obligation on franchisors to prepare for prospective franchisees a short standalone statement summarising the key risks.
  • The introduction of penalties for breach of the Franchising Code as well as a general strengthening of the enforcement regime.
  • Increased disclosure about online activities.
  • Great rigour will be required regarding marketing funds.


  • The review of the Franchising Code was announced by the Australian Government on 4 January 2013.
  • This is the fourth major review of franchising and the Franchising Code at the Commonwealth level since 2006 and fulfils the Government's 2009 commitment to review the code in 2013.
  • Mr Wein received 73 submissions (including that of DLA Piper) and conducted over 30 face to face consultations with industry in the preparation of the review.

The recommendations represent the largest overhaul of the Franchising Code since its inception. Overall, and depending on which ones the government adopts, they should generally improve the administrative burden on franchisors although the strengthening of the enforcement regime represents increased exposure for franchisors.

This update provides a summary of the key recommendations and their potential impact for franchisors.




Disclosure obligations
The franchisor must provide a disclosure document to the franchisee if the franchisor notifies the franchisee of its intention to renew the franchise agreement in accordance with section 20A of the Franchising Code. (Section 20A deals with end of term arrangements and requires the franchisor to give at least 6 months' notice of its intention to either renew or not renew).

The Franchisor must provide a disclosure document when notifying of its intent to renew a franchise agreement.

The recommendation seeks to clarify the ambiguity highlighted by several submissions to the review regarding section 20A namely whether a disclosure document was required on notification by a franchisor that it intends to renew a franchise agreement.

A foreign franchisor (or master franchisor) will, in most cases, only be required to submit a short-form disclosure document (rather than the long form that is currently required to be provided to all prospective franchisees). This short form document will need to be provided to franchisees.

Only franchisees who do not also act as franchisors will be provided with the full disclosure document by their immediate franchisor.

The short-form disclosure document must contain:

  • basic contact details and background of the foreign or master franchisor;
  • the essential obligations that have been delegated under the master franchise agreement;
  • information regarding intellectual property (including the ownership or licensing arrangements that the franchisee will have rights to); and
  • the impact will be on the subfranchisee if the master franchisee is terminated or not renewed.
The short form document (where it can be used) should result in a greatly reduced regulatory burden for foreign franchisors and master franchisors.
The franchisor must disclose rights associated with the conduct of online sales, including any ability of the franchisor to conduct online sales.

Franchisors must be transparent about their online sales plans. This may force franchisors to consider their online strategies earlier than they may wish to.

Currently, item 8 of Annexure 1 to the Franchising Code provides that a franchisor must disclose certain information about a franchisee's right to operate in an exclusive or non-exclusive territory, including, for example, whether the franchisor or other franchisees may operate a business that is substantially the same as the franchised business in the franchisee's territory. The internet is not what is conventionally considered a territory and it is currently not clear whether the franchisor is required to disclose its ability to compete with a franchisee online.



Franchisors must provide a short summary of the key risks. The summary should:

  • be generic;
  • provide more detail than the current item 1 of Annexure 1 to the Franchising Code, (but 1-2 pages in length);
  • be a standalone document; and
  • be provided to franchisees at their first point of contact with a franchisor.
The introduction of this document will increase the administrative burden on franchisors but should not be overly burdensome.
Franchisor failure

Franchisees and franchisors will be provided with a right to terminate the franchise agreement if any administrator of the other party does not turn the business a round, or a new buyer is not found for the franchise system, within a reasonable time (for example 60 days) after the appointment of the administrator.

The courts can extend this timeframe in appropriate cases and the parties can negotiate a right to terminate at an earlier stage.

Franchisees will be made unsecured creditors of the franchisor in the case of franchise failure (that is the insolvency of the franchisor). The amount will be determined by apportioning the franchise fee across the whole term and determining the amount for the unexpired term.

As these recommendations will only ever apply in the case of franchisor failure, they are not so much a concern for franchisors as they are for major creditors of the franchisor. The qualification on that assessment is that the right to terminate the franchise agreement in the case of franchisor administration will make it very difficult for the franchisor to trade its way of out administration.
Increased transparency of financial information in a franchise
Franchisors will be prohibited from imposing unreasonable significant unforeseen capital expenditure. 'Unreasonable' and 'significant' should be defined, so that a franchisor can demonstrate a business case for capital investment in the franchised business.

This recommendation is aimed at ensuring that franchisors do not impose unreasonable significant unforeseen expenditure and will require more diligence from franchisors and may restrict them in their redevelopment plans if there has been no adequate disclosure.

Although the Franchising Code already requires franchisors to disclose whether franchisees will be required to undertake unforeseen significant capital expenditure that was not disclosed by the franchisor before the franchisee entered into the franchise agreement, a number of submissions to the review reviewed indicated that some franchisors do not disclose any information under this item while others disclose a long list of expenses which provided little valuable information to a franchisee.



Marketing funds are to be administered as follows:
  • marketing and advertising costs should be separately accounted for;
  • contributions to marketing funds from individual franchisees should be held on trust (although the franchisor will have wide discretion on their application);
  • company-owned units must contribute to the marketing and advertising fund;
  • the marketing and advertising fund should only be used for expenses which are clearly disclosed to franchisees by way of the disclosure document and are legitimate marketing and advertising expenses;
  • an annual independent audit should be conducted (the ability of franchisors to escape the requirement by the consent of 75% of franchisees will be removed); and
  • the results of the audit and other detailed information about the expenditure of marketing and advertising funds should be made available to franchisees annually.

Franchisors will now be required to administer their marketing funds with increased diligence and disclosure. The recommendation not only increases the franchisor's reporting and regulatory requirements, but also its costs.

Currently, the Franchising Code requires franchisors to provide franchisees with a statement detailing the receipts and expenses for such funds each financial year within three months of the end of each financial year.

In addition, a franchisor is required to have the marketing fund statement audited each year and provide franchisees with a copy of the auditor's report (unless 75 per cent of franchisees agree that it is not necessary). Franchisors will no longer be able to escape the auditing requirement via this method.

Many submissions alleged that marketing funds were a common source of dispute between franchisees and franchisors, are prone to improper or questionable use by the franchisor and lack transparency.

Good faith obligations

The Franchising Code will include an express obligation to act in good faith, which will:

  • apply to both the franchisor and the franchisee;
  • extend to the negotiation and performance of a franchise agreement including, the resolution of any disputes between the parties irrespective of whether there is a valid franchise agreement at the time of the dispute;
  • not be statutorily defined;
  • not be able to be limited or excluded by contract;
  • not prevent a party from acting in its legitimate commercial interests; and
  • prohibit an argument that a franchisor has not acted in good faith because there is no term in a franchise agreement specifying a right of renewal.
This proposed amendment may cause some uncertainty for franchisors when exercising any of their rights under the franchise agreement as the law on good faith is not consistent across each of the Australian states. This potential uncertainty was acknowledged in the report particularly as there will be no definition in the Franchising Code.
Transfer, renewal or end of a franchise agreement
A written request from a franchisee to keep its details confidential must come from that franchisee without procurement, initiation or encouragement from the franchisor.

Some franchise agreements will include a term that requires the franchisor to keep the franchisee's details confidential. This effectively allows a franchisor to avoid disclosing the contact details for ex-franchisees in a disclosure document.

This recommendation would require that any such terms be removed from the franchise agreement unless requested by the franchisee.



The Franchising Code be amended as follows:

  1. The franchisor is taken to have given consent to the transfer or novation if the franchisor does not, within 42 days after the request was made, or all information reasonably required by the franchisor under the franchise agreement has been provided, whichever is the latter, give to the franchisee written notice:
    1. that consent is withheld; and
    2. setting out why consent is withheld.
  1. The franchisee should take all reasonable steps to provide all information required under the franchise agreement to enable the franchisor to be able to properly evaluate the request.

This amendment will benefit franchisors. The effect of this recommendation would be that franchisors are given sufficient time to respond to a request by the franchisee to transfer or novate an agreement before consent is deemed.

Currently, clause 20(4) of the Franchising code provides that the franchisor is taken to have given consent to the transfer or novation if the franchisor does not, within 42 days after the request was made, give to the franchisee notice that the consent is withheld and setting out its reasons.

It was submitted that franchisees often write to franchisors stating that there is a proposed dale but does not include terms of the contract to enable the franchisor make an informed decision.

The Franchising Code be amended to provide that any restraint of trade clauses in the franchise agreement are not enforceable if all of the following conditions are satisfied:

  • the franchisee wishes to have the franchise agreement renewed on substantially the same terms;
  • the franchisee is not in breach of the agreement;
  • the agreement does not contain provisions allowing a franchisee to make a claim for compensation in the event that the franchise is not renewed;
  • the franchisee abides by all confidentiality clauses in the agreement and does not infringe the intellectual property of the franchisor; and
  • the franchisor does not renew the franchise agreement.
This recommendation may have large impact on a franchise. Effectively, it allows a franchisee to open a competing business in the territory if all of the conditions listed are met.
Dispute resolution
In order to provide clarity and consistency, the alternative dispute resolution framework under the Franchising Code should apply to any franchise dispute in any alternative dispute resolution process. Parties to a franchise agreement will be required to comply with Part 4 of the Franchising Code (which outlines a certain procedure) regardless of the alternative dispute resolution process engaged. This will prevent franchisors adopting a course of action to avoid the dispute resolution procedure under the Franchising Code.

The Franchising Code should be amended to ensure that franchisors cannot:

  • attribute the legal costs of dispute resolution to a franchisee unless ordered by a court; or
  • impose a requirement on a franchisee to litigate in a jurisdiction other than the state/territory in which the franchisee's business is principally conducted.

This, in effect, may increase franchisee disputes because these matters discouraged franchisees from litigating.

The review pointed to the costs to franchisees in raising a dispute with a franchisor as having an inhibiting effect. Restricting the ability of franchisors to attribute the costs of dispute resolution unless by court order, would assist with reducing the costs of dispute resolution for franchisees and improve their access to justice. In addition, requiring parties to litigate in the jurisdiction where the franchise is operated reduces travel and other associated costs as well as removing the obstacle of the franchisee having to litigate in an unfamiliar (and possibly foreign) forum.




The Franchising Code be amended to:

  • allow civil pecuniary penalties of up to $50,000 to be available as a remedy for a breach of the Franchising Code;
  • allow the ACCC to issue an infringement notice for a breach of the Franchising Code;
  • allow the ACCC to use its powers under s 51ADD of the CCA (its random audit powers) to assess a franchisor's compliance with all aspects of the Franchising Code;
  • include a breach of the Franchising Code in the contraventions for which the court may make an order under section 86E (Order disqualifying a person from managing corporations); and
  • specify that the court can make franchising specific orders under section 87, including orders requiring a franchisor to:
    • give a royalty free period to a franchisee affected by a breach of the Franchising Code; and
    • pay a sum of money specified by the court into any marketing or cooperative fund applicable to that franchise system.

This recommendation would expose franchisors to risk of incurring civil pecuniary penalties, which previously were not expressly available. Franchisors would have to be more careful in their overall approach and diligent to ensure strict compliance.

There are already a number of available remedies and penalties which can be applied when a party breaches the Franchising Code. For example, courts can impose a number of remedies (such as compensation, court enforceable undertakings or public warning notices) and civil pecuniary penalties in some circumstances (such as for misrepresentation). Further, any aggravating conduct would be caught by the Australian Consumer Law. These will continue to apply in addition to the increased enforcement powers.


The Government views the recommendations as a 'roadmap for reforms' which will be an important step in ensuring that the franchise sector 'can continue to grow and develop as an essential part of our [Australia's] economy'. As a result of the independent review, the Government is now considering its response and intends to prepare a Regulatory Impact Statement, which may involve further consultation with key stakeholders before any of recommended changes are included in the Franchising Code. It is possible that the Government will seek further submissions on this.

Whilst the timing of the Government's response is unknown at this stage, based on previous reviews of the Franchising Code and the Government's unwavering commitment to strengthen franchising in Australia, we expect that any reforms will come into play within the coming six months.

Once this review has concluded and any reforms are in place, it has been recommended by Mr Wein that any further review of the Franchising Code should not take place for a minimum of five years.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.