Australia: New Franchising Code of Conduct to commence 1 January 2015

The most significant changes to the Franchising Code of Conduct (Code) since its introduction in 1998 will come in to effect on 1 January 2015 following the commencement of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014.

The Government asserts that the objective of the Code is to strengthen its effectiveness and responsiveness and to reduce the red-tape for franchisors and franchisees.

We set out below a summary of the key changes introduced by the Code and what franchisors and franchisees need to do in order to comply with the Code by 1 January 2015.


The Australian Competition and Consumer Commission (ACCC) will have additional powers as follows:

  • Civil penalties – franchisors and franchisees may be liable for civil penalties of up to $51,000 if they breach certain sections of the Code. See this table for a list of the obligations in the Code which may result in the imposition of a civil penalty (or an infringement notice – see below) if breached.
  • Infringement notices – in September 2014 the Government implemented the Competition and Consumer Amendment (Industry Code Penalties) Act 2014 which amends the Competition and Consumer Act 2010 to permit the ACCC to issue infringement notices for breaches of the civil penalty provisions in the Code. The amount the ACCC will be able to impose by way of such infringement notices is initially $8,500 (for a body corporate). If a person pays the amount set out in an infringement notice, proceedings cannot be brought against them in relation to the alleged contravention of the Code. If, however, a person does not pay the amount set out in the infringement notice, they take the risk that the ACCC may seek to have the matter heard in court which could expose them to higher civil penalty amounts.


The Code introduces an express obligation on parties to a franchise agreement to act in good faith in their dealings with one another under or in relation to the franchise agreement or the Code (which includes the negotiation of a prospective franchise agreement).

The meaning of "good faith" is not specifically articulated in the Code. Instead it is defined in the Code as having the meaning set out in the "unwritten law" (being the common law developed by courts in relation to good faith).

In determining whether a party has acted in good faith, the Code provides that a court may have regard to whether the party has acted honestly and not arbitrarily, and whether they have cooperated to achieve the purposes of the franchise agreement.

The Code expressly recognises that a party will not be in breach of the obligation to act in good faith merely by acting in its own legitimate commercial interests.

It is not possible for the parties to contract out of the obligation to act in good faith and a party may be liable for a civil penalty if it breaches this obligation. Franchise participants are subject to this good faith obligation on and from 1 January 2015.

The Explanatory Statement to the Code explains that the good faith obligation is "intended to provide a flexible mechanism for addressing opportunistic and unfair conduct in franchising that may fall below the threshold of more serious misconduct provisions within the Australian Consumer Law or the [Competition and Consumer Act]".


The Code is good news for franchisees as it bolsters their rights in a number of areas:

  • Restraints on former franchisees not enforceable in certain circumstances – a restraint of trade clause in a franchise agreement (e.g. an obligation on the franchisee to not conduct a similar business following termination of the agreement for a certain duration and in a certain territorial location) will not be enforceable if:
    • the franchisee had sought to renew the agreement (regardless of whether or not it had a contractual right to renew) on substantially the same terms as those contained in the franchisor's then current franchise agreement (or agreement that would apply to prospective franchisees);
    • the franchisee was not in breach of the agreement (assessed at the time of expiration) and had not infringed the franchisor's IP or any confidentiality agreement with the franchisor;
    • the franchisor does not renew the agreement; and
    • either: (1) the franchisee claimed compensation for goodwill because the agreement was not extended but the compensation given was merely a nominal amount and did not genuinely compensate the franchisee for goodwill; OR (2) the agreement did not allow the franchisee to claim compensation for goodwill in the event that it was not extended.

    Since it is common for franchise agreements to prohibit the franchisee from claiming compensation for goodwill at the end of the term, if this approach is maintained in franchise agreements which are entered into (or existing agreements varied or transferred) after 1 January 2015, the restraints in those agreements are likely to be unenforceable. See our comments below on what franchisors should consider doing before 1 January 2015 to ensure its restraints are enforceable after 1 January 2015.

  • Limitations on requiring capital expenditure – subject to several broad exceptions (such as where it is agreed by the franchisee, disclosed in the disclosure document or agreed by a majority of the franchisees), a franchisor must not require a franchisee to undertake significant capital expenditure during the term of a franchise agreement. Franchisors will not be able to require significant capital expenditure by franchisees (e.g. enovations to premises) without careful planning.
  • Marketing contribution by franchisors – if a franchisor operates one or more units of a franchised business, the franchisor must pay marketing fees on behalf of each unit on the same basis as the other franchisees.
  • Disputes – a franchisor cannot include a clause in the franchise agreement which attributes the franchisor's cost of dispute resolution to the franchisee or a clause which requires a franchisee to commence any proceedings or conduct dispute resolution outside the State or Territory where the franchisee's franchised business is located (unless otherwise agreed at the time of the dispute).


As franchisors will be aware, considerable time and resources are spent producing up to date disclosure documentation and complying with a number of procedural requirements set out in the Code. While some burdensome requirements have been removed (such as summarising the franchise agreement obligations in the disclosure document), a number of additional administrative and procedural requirements have been introduced:

  • Information Statement – franchisors must provide prospective franchisees with an information sheet (set out in the Code) which outlines the risks and rewards of franchising as soon as practicable after the prospective franchisee applies to become, or expresses interest in becoming, a franchisee – this is in a prescribed form and may simply be reproduced.
  • Online activities – further details of the franchisor's (or any of its associates') online trading activities need to be set out in the franchise disclosure document, including the impact of such activities on the franchisee territory and any profit sharing arrangements that apply to goods or services made available online that would affect the franchisee.
  • Marketing – franchisors must provide further disclosure on the types of expenses marketing funds are being used for and must maintain a separate bank account for receipt of the marketing and advertising fees contributed by franchisees.
  • Record keeping – if the Code requires or allows a franchisee to give something to a franchisor in writing (for example, the disclosure document receipt and advice certificates required to be obtained from the franchisee under clause 10 of the Code), the franchisor must retain it (or a copy of it) for a period of at least 6 years. Also, if a franchisor makes a statement or claim in a disclosure document and relies on a document to support that statement or claim, the franchisor must keep that supporting document.
  • Extensive details of associates must be disclosed – in addition to outlining each corporate associate of the franchisor (which is already currently required by the Code), the disclosure document will also need to include:
    • a description of the relationship with the associate and the relevance of the relationship to the franchise system and franchise;
    • details of current proceedings and specific previous proceedings and offences relating to associates (including directors of any corporate associates); and
    • the number of businesses similar to the franchised business which are owned or operated in Australia by an associate of the franchisor
  • No renewal statement – if the franchisee does not have the option to renew the franchise agreement or extend the term of the franchise agreement, the disclosure document must include a prescribed statement intended to alert the franchisee to this risk.

Franchisors will need to make a number of changes to their disclosure documents and processes to take account of these new requirements.


Franchisors need to address the following (note that some are time critical):

  1. From 1 January 2015 franchisors will need to provide the information statement described above to prospective franchisees.
  2. Where the franchisor does not currently pay its franchisees any genuine compensation for goodwill at the end of a franchise arrangement and wishes to impose post termination restraints on those franchisees from conducting a similar business post termination, the franchisor should consider negotiating an extension to its current agreement (or enter a new agreement) with those franchisees before 1 January 2015 in order to take advantage of the transitional arrangements in the Code.
  3. Franchisors need to review their franchise agreements to determine whether they need to make any of the following amendments in respect of new franchise agreements to be entered into on or after 1 January 2015 (or if any existing franchise agreement will be varied (which includes an extension to the term) or transferred on or after that date):
    1. consider the appropriateness of any post termination restraints imposed on franchisees and, if their enforceability is a key concern, consider including a provision which permits the franchisor to pay genuine compensation to the franchisee for its goodwill if the franchisor does not agree to renew the franchise agreement;
    2. ensure the disputes clause complies with the new Code requirements regarding the jurisdiction of any dispute resolution and ensure there is no requirement on the franchisee to pay the franchisor's costs in the franchise agreement; and
    3. ensure any provisions which state that the parties are not obliged to act in good faith, or documents incorporated by reference which do so, are amended to remove such statements.

    It is important to note that any variation (however small) to an existing franchise agreement (which is made on or after 1 January 2015) will bring the franchise agreement under the Code in its entirety (without any of the transitional carve outs).

    A broader review of the franchise agreement may also be warranted given the possibility that the Government will introduce legislation which would impose unfair contract term restrictions on standard form small business contracts (which would likely capture many franchise agreements).1 Motor vehicle manufacturers with dealerships in NSW are already subject to restrictions on the imposition of unfair contract terms under their Dealer Agreements2 but any new Commonwealth legislation would likely impact all industries and jurisdictions.

  1. By 1 January 2015, the franchisor needs to create a separate bank account for marketing funds and, if applicable, contribute to those funds in the same manner and proportion as if it were a franchisee.
  2. By 1 January 2015, the franchisor needs to adjust its processes so that:
    1. it complies with the new record retention requirements;
    2. all prospective franchisees are given an information statement in the prescribed form (see Annexure 2 of the Code). This does not apply to renewals or extensions of existing franchise agreements; and
    3. it carefully plans any capital expenditure requirements it proposes to impose on franchisees post 1 January 2015 and communicate and implement this in a manner which complies with the Code.
  1. An existing disclosure document does not need to be updated by 1 January 2015, as there is a transitional procedure which permits the existing disclosure document to be given up to 1 November 2015. However, franchisors:
    1. should start to gather the necessary information required so that it can start amending the disclosure document so that it complies with the new Code requirements on or before 31 October 2015; and
    2. should still update its disclosure document within 4 months after the end of the franchisor's financial year.

Franchisors should however note that once they update the disclosure document after 1 January 2015, then they will need to comply with all new disclosure document requirements in the Code.


2 Motor Dealers and Repairers Act 2013 (NSW)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

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”

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions