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Franchising Code reforms to address power imbalances when disputes arise

Karen Tan
02 June 2021 1 minute readShare
Franchising Code reforms to address power imbalances when disputes arise

Significant reforms to the Franchising Code of Conduct announced by the Australian government this week (1 June 2021) will be a boon across the franchising sector and create a more level playing field between franchisees and franchisors.

Australian Small Business and Family Enterprise Ombudsman Bruce Billson said that when the reforms kick in from 1 July 2021, they will help address the power imbalances that often exist, especially when disputes occur.

“These reforms are an important step towards getting the balance right for our small and family businesses in the franchising sector,” said Mr Billson.

The federal government’s suite of changes to the Franchising Code of Conduct include significant improvements to disclosure, coverage, adequacy of terms to secure a return on investment, dispute resolution, and compensation requirements.

The changes come on the back of an earlier Fairness in Franchising Report and draft of proposed changes to the code, and following a Parliamentary Inquiry into the franchising sector and the effectiveness of the Code.

Mr Billson notes greater powers have now been provided to his office to appoint an independent arbitrator when both parties agree, which will help resolve disputes in a cost-effective and timely manner.

“This supports a no-surprises, collaborative and mutually respectful commercial relationship between franchisees and franchisors, while crucially protecting business relationships,” said Mr Billson

“Allowing my office to facilitate group mediation when several franchisees are in a similar dispute with the same franchisor is another critical reform that will help restore confidence in this sector.”

Changes to the Code mean prospective and current franchisees will be better equipped with essential information they need to successfully run their business.

The Code has progressively been undergoing change, with some reforms already underway, and more to unfold from 1 July this year.

Franchisors have been advised to start updating their franchise agreements and disclosure documents, to ensure they are operating their network in line with the most recent version of the code.

“This includes more transparency around the marketing fund, with an annual financial statement which sets out meaningful information regarding expenditure. Greater visibility around rebates and leasing arrangements will be achieved by these reforms,” said Mr Billson.

A new mandatory Franchise Disclosure Registry is scheduled for release in early 2022. Mr Billson considers this as key to providing prospective franchisees with vital information needed before entering into a binding franchise agreement.

“Over the past six months, my office has fielded over 240 calls from franchisees seeking information regarding disputes under the Franchising Code of Conduct,” said Mr Billson.

“This demonstrates just how critically important it is for prospective franchisees to know exactly what they are getting into before signing on the dotted line.

“Ultimately, these much-needed reforms to the Franchising Code of Conduct will play an important role in making Australia the best place to start, grow and transform a business.”

Franchising Code reforms to address power imbalances when disputes arise
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Karen Tan

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