The game is set to change for operators engaging in serious breaches of the Franchising Code of Conduct with proposed enforcement powers increasing the stakes on 1 January 2015.
Based on the exposure draft of the new Code released in April 2014, the Australian Competition and Consumer Commission will be able to issue infringement notices of up to $8,500 and seek penalties up to $51,000 in the Federal Court for contraventions of the Code.
Addressing the National Franchise Convention’s Legal Symposium in Sydney on Sunday, ACCC Deputy Chair Dr Michael Schaper said the possible new tools will provide flexibility and balance in dealing with breaches of the Code at both ends of the severity spectrum.
“Infringement notices will allow us to move swiftly to deal with what we believe to be breaches of the Code, while the court penalties will provide more teeth in deterring rogue operators,” Dr Schaper said.
“The changes are likely to go unnoticed by franchisors and franchisees who do the right thing. However, the new powers are likely to play an important role in achieving compliance with the Code.”
“While there will not be a moratorium period, we will apply our discretion in line with our Compliance and Enforcement Policy in deciding whether to take enforcement action,” Dr Schaper said.
“This policy reflects a common sense approach by the ACCC to the use of its regulatory powers.”
Dr Schaper said the ACCC will focus on particularly serious conduct, including breaches of the ‘key pillars’ of the revised Code.
“This is likely to include failure to act in good faith, failure to provide a disclosure document, refusal to attend mediation and unlawful termination of a franchise agreement.”
The Deputy Chair also explained what the possible introduction of a good faith obligation would mean for franchisors and franchisees.
“Fundamentally, good faith will require both parties to a franchise agreement to remain loyal to the contract they have entered into,” Dr Schaper said.
“Acting for an ulterior purpose, or in a way that undermines or denies the other party the benefits of the contract are examples of conduct that may qualify as bad faith.”
“While good faith requires you to have regard to the rights and interests of the other party, it does not prevent you from acting in your own legitimate commercial interests.”
Dr Schaper said the ACCC is conscious about ensuring franchisors, franchisees and prospective franchisees have clear and meaningful guidance about the revised Code.
As well as updating publications, he said the ACCC will hold a free webinar on 9 December to help the sector prepare for the changes.
Franchisors, current or prospective franchisees and their advisers can register for the webinar.