If you are considering starting a franchise, you have likely encountered the term “Franchising Code of Conduct”. The Franchising Code of Conduct (the Code) plays a crucial role in regulating franchise agreements and maintaining an amicable franchisor-franchisee relationship. This article will explain the Code, outline the associated penalties, and emphasise the necessity of your compliance.
What Does the Franchising Code of Conduct Entail?
The Australian Competition and Consumer Commission (ACCC) is the national regulator for consumer and competition laws, overseeing franchising through the Code. This code establishes regulations for franchise agreements, outlining specific requirements and standards. Franchise agreements are legally binding contracts between franchisors, such as yourself, and franchisees.
The Code governs actions before, during, and after the franchise agreement term. Accordingly, it expects all parties to act in good faith throughout the agreement. Additionally, it ensures that current and prospective franchisees are provided with essential documents such as a disclosure document or the final version of lease documents.
The Code extends its regulatory scope to the entire franchise relationship, offering mechanisms for dispute resolution, including:
- mediation;
- conciliation; and
- arbitration.
It also details procedures for franchisee termination and provides guidelines for entering into agreements.
Penalties for Non-Compliance
Several franchising obligations come with penalties for non-compliance, and recent changes have significantly increased these penalties.
For instance, the maximum penalty for certain breaches has increased from $66,000 to $10 million for a corporate body. Alternatively, the penalty may be calculated as three times the value of the benefit gained from the infringement.
Financial penalties for breaches of pre-existing obligations have also increased from 300 penalty units to 600 penalty units. This number of units equates to a monetary shift from $66,600 to $133,200. These penalties apply to various obligations, such as:
- failing to act in good faith;
- creating a compliant disclosure document; or
- providing lease information within the specified timeframe.
Why Should You Comply With The Code?
You must comply with the Code for many reasons. Some of these include the imposition of penalties for non-compliance, the assurance of good business practices, the protection of vulnerable parties, and the safeguarding of your brand.
Penalties
Penalties for non-compliance are a significant concern, as discussed earlier. If you fail to adhere to certain provisions of the code, this may result in substantial costs. It can cost you up to $10 million—a considerable financial burden.
Ensure Good Business Practice
Ensuring good business practices is a primary objective of the Code, which serves to regulate the franchising sector. It mandates disclosure through documentation and incorporating clauses related to dispute resolution and termination. These are pivotal terms for establishing fair franchise operations. Adhering to the Code also serves as a reliable reference point for guidance as you navigate various business scenarios.
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Protects Vulnerable Parties
The protection of vulnerable parties, particularly franchisees, is a key aspect addressed by the Code. The Code protects franchisees against potential exploitation by ensuring franchisors adhere to its provisions.
Safeguards Your Brand
Compliance with the Code goes beyond legal obligations—it serves as a crucial measure to protect your brand. Breaches of the Code become public knowledge, posing a potential threat to your reputation. Therefore, a compelling reason to comply is to uphold and maintain your positive brand image. This will ultimately foster the growth and success of your franchised business.
Key Takeaways
The Franchising Code of Conduct outlines standards and requirements for franchisees and franchisors. You must adhere to this mandatory industry code. It is also wise to follow the Code because it imposes penalties on non-compliance, promotes good business practices, protects vulnerable parties, and safeguards your brand.
If you need assistance in following the requirements of the Code, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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