Small business

Breaches of the code

Who is liable for a breach of the Code?

While section 51AD of the Act prohibits businesses from contravening the Code, individuals can also be liable. Individuals’ liability can extend to the directors, the secretary, other officers or the board members of a company. Liability can also extend to employees of the company.

A person may be liable if they:

Good faith & legitimate business conduct

What is ‘good faith’?

The meaning of ‘good faith’ under the Code takes on the same meaning that exists at common law, which will continue to develop and evolve in Australia over time.

Under common law, the duty of good faith will require you to act reasonably and not exercise your powers arbitrarily or for some irrelevant purpose. Your conduct may lack good faith if you act dishonestly, for an ulterior motive or in a way that undermines or denies the other party the benefits of a contract.

Code complaint-handling procedure

The internal complaint-handling procedure represents the minimum standard for complaint handling. As an alternative to using your internal complaint-handling procedure, you or the franchise may try to resolve a dispute using the procedure set out in the Code, which is more comprehensive.

Step one: inform the other party of the dispute

The complainant (this could either be you or the franchisee) must inform the respondent (the person with whom the complainant has a dispute) in writing of the dispute.

End of the term

The Code does not require that you extend a franchise agreement or enter into a new agreement once the term of the agreement ends. However, as mentioned previously, you must notify the franchisee in writing whether you intend to extend the term or enter into a new agreement with the franchisee.

Restraints of trade

If the franchisee seeks to extend the agreement and you decide against the extension, the Code may provide protection to the franchisee if you later attempt to enforce a restraint of trade clause against them.

The protection will only apply if:

Termination

The Code does not provide you with a right to terminate a franchise agreement. Whether you have the right to terminate an agreement, and in which circumstances, will normally be determined by the terms of your franchise agreement.

What the Code does is require you to follow certain processes if you propose to terminate a franchise agreement.

Transfer

The Code does not provide a franchisee with an automatic right to transfer their franchise agreement to a third party. What the Code does is provide a process by which a franchisee may seek your consent to a transfer.