Without much fanfare last week Australia's new, but long
awaited, Franchising Code of Conduct was published. Since it is to
take effect on 1 January 2015, Australian franchise systems need to
work fast to make sure that their documents and processes are in
order before the new year.
The current code will be repealed on 31 December 2014 and the
new Code will apply to both new and existing franchise
There are a few transitional exceptions for some provisions of
the new Code so that some of the franchise agreement clauses
prohibited by the new Code will continue to be effective in current
franchise agreements (or at least until those agreements are
transferred or varied). Provisions which require disputes to be
heard in another state or territory to where the franchisee's
business is located or which allow the franchisor to recover costs
of settling a dispute from a franchisee will be prohibited and void
in any new franchise agreements. However these clauses will still
be effective if included in an agreement signed before 1 January
The other main transitional concession is that franchisors can
continue to use their current disclosure document after 1 January,
potentially up to 31 October 2015.
However the new Code has a number of new requirements that take
effect straight away such as with respect to the operation of
marketing funds and what the funds can be spent on. Prospective
franchisees must receive a new Information Statement in particular
format and there are now strict record keeping requirements for
franchisors. These matters all take effect from 1 January 2015.
It is important also for franchisors to realise that the new
Code has new civil pecuniary penalty clauses (24 in total) for
breaches of the new Code including failing to act in good faith,
failing to repay money to franchisees who terminate in the cooling
off period, terminating without the proper notice and other
matters. These penalties will be able to be applied to conduct from
1 January whether or not the franchisee in question entered into a
franchise agreement before or after 1 January.
The penalties are potentially quite significant especially where
there are multiple breaches. For each breach of a civil pecuniary
penalty provision the ACCC has the power to either:
Issue an infringement notice - 50 penalty units for a company
(i.e. currently a fine of $8,500) / 10 penalty units for an
individual ($1,700); or
Seek a court order for a civil pecuniary penalty of up to 300
penalty units - $51,000.
Therefore while there is an ability to keep using the old form
of disclosure document into 2015, the fact is that franchisors will
need to immediately review their template franchise agreement for
any prohibited terms, review their procedures and the franchise
application process, make sure their marketing fund is compliant
with the new requirements and their record keeping is
With the new penalty regime taking effect from 1 January
franchise systems must start this process straight away if they do
not want to risk a penalty or fine from the ACCC.
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.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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