Client Update: Government announces changes to the Franchising Code of Conduct
6 November 2009
In brief: The Federal Government has announced its response to the Report into the Franchising Code of Conduct by the Parliamentary Joint Committee on Corporations and Financial Services, and foreshadowed its changes to the regulation of franchise agreements. Partner Tim Golder (view CV) and Senior Associate Robyn Chatwood report.
Key changes
The key changes were announced yesterday by the Minister for Innovation, Industry, Science and Research, Dr Craig Emerson, although draft legislation has not yet been released.
Key changes include:
Penalties: Penalties of up to $1.1 million for corporations and $220,000 for individuals will be introduced for anyone engaging in unconscionable conduct or false and misleading representations. This change will apply generally as an amendment to the Trade Practices Act 1974 (Cth) when the Australian Consumer Law reforms presently before the Parliament commence (so it will not only affect franchises). (See our Client Update on Government moves to amend unfair contract terms legislation, 2 November 2009.)
Random audits: The Australian Competition and Consumer Commission's (ACCC) powers will increase to enable the ACCC to conduct random audits of franchise systems. The Parliamentary Joint Committee's Report originally recommended that the ACCC investigate when it received 'credible' information indicating a party to a franchising agreement may be engaging in conduct contrary to the Franchising Code of Conduct.
Mandatory six-month period for notices of renewal: The Government will require the franchisor to inform the franchisee at least six months before the end of a franchise agreement of the franchisor's decision to either renew or terminate an expiring franchise agreement.
ACCC actions may encompass all affected franchisees of a group: The reforms provide that the ACCC may seek court orders on behalf of all affected franchisees damaged by a franchisor's breach of the Code, whether or not all franchisees are parties to the legal proceedings against the franchisor.
Good faith: Notably, the Government responded to the call for a mandatory obligation of good faith in franchise agreements with a proposal to introduce measures into the Franchising Code to prevent 'inappropriate' behaviour in franchising agreements, but the Government made clear that it would not legislate for a general obligation of good faith as that would 'increase uncertainty in franchising'.
Further reforms are foreshadowed. Dr Emerson announced the establishment of an expert panel to advise further Code changes, with a report expected from the Panel by the end of January 2010.
What next?
The Government's changes will largely be welcomed by franchisors, given that the Parliamentary Joint Committee Report had recommended far more problematic ones.
Draft legislation is unlikely to be released this year. This will give the industry more time to review standard form contracts. However, the new laws will still require some changes to some contracts. In the interim, until the draft legislation is released, there will be a degree of uncertainty for many businesses.
For further information, please contact:
- Tim GolderPartner,
Melbourne
Ph: +61 3 9613 8925
Tim.Golder@aar.com.au - Andrew WisemanPartner,
Sydney
Ph: +61 2 9230 4701
Andrew.Wiseman@aar.com.au - Peter JamesPartner,
Brisbane
Ph: +61 7 3334 3360
Peter.James@aar.com.au - Richard SpurioPartner,
Melbourne
Ph: +61 3 9613 8533
Richard.Spurio@aar.com.au - David BrewsterPartner,
Melbourne
Ph: +61 3 9613 8707
David.Brewster@aar.com.au
