Because there is often a power imbalance between franchisors and franchisees, the code sets out what franchisors and franchisees must do when there is a dispute. The code doesn’t decide who is right or wrong in a dispute.
If there is a dispute, there are 2 steps that either the franchisor or the franchisee can take.
- Step 1. Tell the other party about the dispute in writing.
- Step 2. If Step 1 doesn’t resolve the dispute, use the franchise agreement process or the code process for disputes.
Step 1: Tell the other party in writing
The code requires you to first try to resolve your dispute with the other party by writing to them outlining:
- the nature of the dispute
- the outcome you want
- what action will settle the dispute.
Step 2: Follow the process in the code or franchise agreement
If you still can’t resolve the problem, follow the process in the code or franchise agreement.
If you have written to the other party about the dispute and can’t agree on an outcome within 21 days, either you or the other party can refer the matter for an alternative dispute resolution process under the code or your franchise agreement.
The dispute resolution process in the franchise agreement must reflect the dispute resolution process set out in the code.
If you and the other party agree to arbitrate your dispute, you or the other party can ask the Australian Small Business and Family Enterprise Ombudsman to appoint an arbitrator for your dispute.
The Australian Small Business and Family Enterprise Ombudsman or your state’s Small Business Commissioner can help you with your dispute.
You can use one or more of the following processes to try and resolve a dispute.
Alternative dispute resolution
Alternative dispute resolution means either mediation or conciliation. Franchisees can try to do mediation or conciliation together. This is known as multiple party dispute resolution.
Mediation is when parties try to negotiate an outcome for their dispute with the help of an impartial person - the mediator. The mediator facilitates the negotiation but doesn’t get too involved in discussions.
Conciliation is a process where parties try to solve their dispute with the help of an impartial person who is known as the conciliator. It is like mediation but a conciliator takes a more active role in discussions. They may offer advice about the subject matter of the dispute and can make recommendations for the parties to consider. Like a mediator, they do not make decisions for the parties.
Multiple party mediation or conciliation is when franchisees who have similar disputes with the same franchisor decide to try and resolve their dispute together. This can be done through either mediation or conciliation.
When deciding whether to take this approach, franchisees are allowed to discuss their disputes with each other, even if there are confidentiality obligations in their agreements, when their franchise agreement was entered into, extended or renewed from 1 July 2021.
If franchisees are concerned that their discussions may breach competition laws, they can notify the ACCC that they plan to use the class exemption for franchisees to collectively bargain with the franchisor.
Voluntary arbitration is another way for franchisors and franchisees to resolve the dispute, or parts of the dispute.
Arbitration is a more formal process than mediation and conciliation. In arbitration, the parties present their case to an independent person - an arbitrator - who decides how to resolve the dispute.
Because arbitration under the code is voluntary, this is only an option if the franchisee and franchisor have agreed somewhere in writing to resolve a dispute this way. The disclosure document will say if the franchisor and franchisee have agreed in their franchise agreement to resolve disputes by arbitration. If not, you can still try to agree outside of the franchise agreement to arbitrate your dispute.
If you and the other party have agreed in writing to resolve a dispute by arbitration, either party can begin the process by asking the Australian Small Business and Family Enterprise Ombudsman to appoint an arbitrator for the dispute. The code sets out a procedure for how to conduct the arbitration.
Once a party has raised a dispute, both parties must attend and try to resolve the dispute in good faith.
Confidentiality obligations may apply to information that is disclosed or obtained in an alternate dispute resolution process or arbitration.
The code says that parties to a conciliation, mediation or arbitration each pay about half the costs related to settling the dispute and conducting the process, unless they agree otherwise. Each party has to pay their own costs of attending the process.
If you take legal action, you could end up paying for more than half the costs.
The code does not stop you from taking legal action over a franchising dispute. If you are considering taking legal action against another party, you should first get legal advice, as legal action can be expensive.
Franchisors can’t make franchisees resolve their disputes outside the state or territory where their business is based or outside Australia.