Application of the Code & non-compliance
The Code applies to franchise agreements. A ‘franchise agreement’ is an agreement (either written, verbal or
implied) that meets the following conditions:
- the franchisor has granted the franchisee the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor (or an associate of the franchisor)
- the operation of the business is substantially or materially associated with a trademark, advertising or commercial symbol that is owned, used, licensed or specified by the franchisor (or their associate) and
- the franchisee is required to pay, or has agreed to pay, a fee to the franchisor (or its associate) before starting or continuing the business, which may be:
- an initial capital investment fee
- a payment for goods or services
- a fee based on a percentage of gross or net income
- a training fee or training school fee.2
A motor vehicle dealership agreement will automatically be covered by the Code even if the above
conditions have not been met.
If you are unsure whether your agreement meets the requirements of the Code you should seek legal advice.
When the Code does not apply
The Code will not apply to a ‘franchise agreement’ where:
- the agreement was entered into before 1 October 1998 (unless that agreement has been transferred, renewed or extended on or after that date).
- another mandatory industry code (for example, the Oilcode) applies to the agreement
- the agreement is for goods or services that are substantially the same as those supplied by the franchisee for at least two years immediately prior to entering the franchise agreement, and are likely to provide no more than 20 per cent of the franchisee’s gross turnover for goods or services in the first year of the franchise.3
Non-compliance with the Code
Failure to comply with the Code may expose you to enforcement action by the ACCC. Financial penalties and infringement notices are available under 24 provisions of the Code. A list of the penalty provisions can be found at Civil penalty provisions under the Code.
For more information on the ACCC’s approach to non-compliance with the Code, see The ACCC’s approach to non-compliance.
2 Excludes payment for goods or services supplied on a genuine wholesale basis, repayment by the franchisee of a loan from the franchisor (or an associate), payment on a genuine wholesale basis for goods taken on consignment, and payment of market value of a purchase or lease of real property, fixtures, equipment or supplies that are needed to start or continue business under the franchise agreement.
3 This exception will cease to apply if the franchisee has told you that sales under franchise have provided more than 20 per cent of the franchisee’s gross turnover for three consecutive years.