About the franchising code and when it applies

Purpose of the code

The Franchising Code of Conduct is a mandatory industry code prescribed under the Competition and Consumer Act 2010. It applies to all businesses and individuals involved in franchising within Australia.

The purpose of the code is to:

• improve standards of conduct in the franchising industry
• address the power imbalance between franchisors and franchisees and prospective franchisees
• increase access to information to inform decision making and minimise disputes
• provide a fair dispute resolution process.

Franchising participants set out in the code

The franchising code refers to various participants in the franchising industry.

Franchisor

A franchisor is anyone that sells or grants a franchise. They:

• largely control how the franchisee’s business is run
• control the name, brand, and business system the franchisee is going to use.

Franchisee

A franchisee is anyone who operates a franchise business under a franchise agreement. They:

• bear the financial risk for their franchised business
• pay money to the franchisor in exchange for using the franchisor’s brand or system to sell products or services for a limited time
• must run the business according to the franchisor’s requirements.

Master franchisor

A master franchisor gives permission to another person or company to participate in or grant franchises under their business system.

For example, they may allow a franchisor to grant and manage franchises in a particular state or territory.

Associate of the franchisor

An associate of the franchisor is a person with a significant relationship with the franchisor that is related to the franchise system.

For example, someone who:

• is a supplier to a franchisee
• allows a franchisee to lease or occupy premises
• is involved in marketing activities for the franchise system.

An associate can be:

• a director of the franchisor
• a company related to the franchisor
• a director of a company related to the franchisor
• a partner of the franchisor.

If the franchisor is a company, an associate can also be someone who owns, controls or has a certain amount of voting power in the company.

Fund administrator

A fund administrator is a franchisor, master franchisor or authorised associate who controls or administers a specific purpose fund.

Rules and obligations under the code

The franchising code sets out rules for how franchising participants must do business. These include:

Acting in good faith

• Franchising participants must act in good faith towards each other.

Information and document obligations

• Franchisors have specific obligations for information and documents.
• Franchisors must give these at certain times and in specific circumstances, and make sure the information is true and not misleading.
• Franchisors must keep records of what they give.
• Franchisors must create a franchise profile and publish key disclosure information on the franchise disclosure register.

Franchise agreement terms

• Terms that must be included and can’t be included in a franchise agreement.
• Rules for when and how a franchise agreement can be changed.

Ending, extending or transferring a franchise agreement

• Franchisees can back out of new franchise agreements within a certain timeframe, known as the cooling-off period.
• Specific steps to follow if either the franchisor or franchisee want to end the agreement early.

How to resolve disputes

• Steps a franchisor or franchisee can follow when there is a disagreement or dispute, including dispute resolution through mediation and arbitration without going to court.
• Minimum standards for dispute processes in the franchise agreement.

When the code doesn't apply to franchise agreements

Under the franchising code, an arrangement is considered a franchise agreement if certain features are present.

In some circumstances though, there are arrangements that look like a franchise agreement, but the franchising code doesn’t apply. If you are unsure which provisions of the code apply to your agreement, you should seek legal advice.

New vehicle dealership agreements

There are parts of the code that only apply to new vehicle dealership agreements. These are agreements where one party is a motor vehicle dealership that deals mostly in new passenger vehicles, new light goods vehicles, or both.

You can find out about the specific rules that apply to these agreements in the franchising code.

When another mandatory industry code applies

The franchising code doesn't apply to a franchise agreement that is covered under another mandatory industry code, for example the Oil Code of Conduct.

Exceptions are the Unit Pricing Code and the Food and Grocery Code of Conduct. The franchising code applies to a franchise agreement to which either of these industry codes applies.

If sales covered by the agreement are less than 20% of turnover

The franchising code doesn't apply to the agreement if the agreement is for goods or services that:

• are substantially the same as those supplied by the franchisee for at least 2 years immediately before entering the franchise agreement, and
• sales under the franchise are likely to provide no more than 20% of the franchisee’s gross turnover for goods or services of that kind in the first year of the franchise.

Cooperatives registered under a state or territory law

The franchising code doesn't apply to franchise agreements where the franchisee is a member of a cooperative registered under the Cooperatives National Law or the Co-operatives Act 2009 (WA).

Mutual entities

The franchising code doesn't apply to franchise agreements where the franchisee is a member with voting rights of a mutual entity.

Interaction with other laws

Different laws apply in franchising. This means franchisors and franchisees have obligations and requirements under other legislation, as well as the franchising code.

See also

Compliance and enforcement of the franchising code