Key changes to the Code and the Trade Practices Act announced today include:

1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations;
2. Random audits of franchise systems to be conducted by the Australian Competition and Consumer Commission (ACCC);
3. Public warnings about rogue franchisors;
4. An acknowledgement of good faith in relation to franchise agreements;
5. A requirement to clarify end of term arrangements, including mandatory period of notice of renewal;
6. Provision to include all affected franchisees of a group to be included in ACCC actions;
7. The creation of an expert panel to advise on inappropriate franchising behaviours to be covered by the Code.

 1. Introduction of fines and penalties

Amendments to the Trade Practices Act will allow penalties of up to $1.1 million for corporations and $220,000 for individuals will apply to anyone engaging in unconscionable conduct or making false or misleading representations. These penalties will apply upon the commencement of the Australian Consumer Law that is now before the Parliament.

2. Random audits of franchise systems

In reforms to the various codes of conduct, the Government will empower the Australian Competition and Consumer Commission (ACCC) to conduct random audits under the Franchising Code and other mandatory codes and to seek redress on behalf of all franchisees who are party to an agreement.

The Government release states: “At present, franchisees wishing to complain about franchisors not complying with the Franchising Code may fear reprisal from franchisors. The ACCC’s random audit powers will strengthen franchisor compliance with the Code, while relieving franchisees of the fear of retaliation against them for complaining to the ACCC about franchisor behaviour.”

3. Public warnings about rogue franchisors

“The Government will also extend the public warning power available under the Australian Consumer Law Bill before the Parliament to include breaches of the Franchising Code and other mandatory industry codes.

This warning – or naming and shaming – power will alert the public to rogue or unscrupulous franchisors.”

4. Good faith in franchising

The Government has not gone so far as to define good faith on the basis that “..the law on good faith is still evolving..” but will introduce measures into the Franchising Code “to prevent behaviours that are inappropriate in franchising agreements”.

“Further, the Franchising Code will be amended to state that nothing in the Code limits any common law requirement of good faith in relation to a franchise agreement to which the Code applies.”

5. End of term arrangements (for new agreements)

“The Government will amend the Franchising Code to require franchisors to disclose to franchisees the processes that will apply in determining end-of-term arrangements, including whether or not there is some right of renewal beyond the term of the agreement. The Government considers these amendments will assist in mitigating disputes where one party has an expectation, not shared by the other party, that a franchise agreement will be renewed.

Franchisors will also be required to inform franchisees at least six months before the end of the franchise agreement of their decision either to renew or not to renew a franchise agreement.

It is the Government’s clear intention that these new end-of-term arrangements will apply to franchise agreements signed after the date of amendments to the Franchising Code. For agreements already in existence, the end-of-term arrangements can be included by the voluntary agreement of both parties but will not be obligatory.”

6. Including all affected franchisees in ACCC actions

“Where a large number of franchisees are harmed by the behaviour of a franchisor in breach of the Franchising Code, the ACCC will be able to apply for an order providing redress to all the franchisees, without requiring every franchisee to be party to the legal proceedings.”

7. Creation of an expert panel to advise further Code changes

The Government will establish an expert panel to inquire into and report on the need to introduce into the Franchising Code provisions that prevent specific behaviours that are inappropriate in a franchising arrangement “with particular reference to:

• Unforeseen capital expenditure;
• Unilateral contract variation;
• Attribution of legal costs;
• Confidentiality agreements; and
• Franchisor-initiated changes to franchise agreements when a franchisee is trying to sell the business.”

The panel will consider whether a list of examples of unconscionable conduct or a statement of principles of what constitutes unconscionable conduct should be incorporated into the Trade Practices Act, and is expected to report by the end of January 2010.

“Following receipt of the panel’s report the Government will make any further necessary amendments to the Franchising Code.”

Read the Government press release announcing the changes

Read a further explanation of the proposed changes