The Franchising Code of Conduct (Code) was drafted to provide franchisees with more protection. But what form of protection does the franchisee have and how can they enforce this protection when a dispute arises later down the line? Many franchisees make a significant investment in commencing a franchise business. Along with this investment, franchisees are often required to remain bound by the franchise agreement for approximately five years. It’s then important for franchisees to know what they are getting into from a commercial, financial and legal perspective. A thorough understanding of your legal position as a franchisee will help the smooth running of the franchise. This article will run through some tips in case a franchise dispute does arise in the future.
1. Look at your Franchise Agreement
The first step is to understand the terms and conditions that you have agreed to. The franchise agreement that you sign should include some important clauses that will allow you to determine how to best approach a dispute. This includes:
- A dispute resolution clause: The franchisor is bound by the Code and must go through the process of dispute resolution before any party decides to terminate an agreement or take a cause of action to court.
- A termination clause: The franchisee should be aware of the provisions for termination. If a dispute arises, the franchisee should prepare to work to resolve the dispute as they may be contracted to remain in the franchise network for a stated period.
- A guarantee clause: The franchise agreement may require that you sign as a guarantor of the agreement to ensure that the franchisee, which is usually a company, complies with the terms and conditions of the agreement. If this is the case, be sure you understand the extent to which you may be personally liable for any failure of the franchisee to comply with their obligations as this may be an issue in the case of a dispute between both parties.
2. Consider Lodging a Complaint
The Australian Competition and Consumer Commission (ACCC) is the governing body that investigates compliance with the Code. The ACCC does accept complaints from franchisees, and this could be an effective way to highlight to the franchisor that you are taking the dispute seriously. It is important to note, however, that due to the amount of complaints the ACCC obtains, they are only able to make decisions on complaints that have merits for an investigation. This usually means that the complaint addresses issues that may apply broadly and could have an impact on the wider application of the Code. The outcome of a complaint could be the issuance of an infringement notice to the franchisor or even the commencement of legal proceedings in court.
3. Understand the Enforcement Powers of the ACCC
As touched upon above, the ACCC have a range of enforcement possibilities. Not only can they issue infringement notices or commence legal proceedings, but they also have investigative powers that can include potentially auditing the franchisor’s documents (i.e. marketing or cooperative fund statements and franchise agreements). Although the ACCC have a range of enforcement possibilities, franchisees should be aware that they still need to be compliant with the dispute resolution procedures contained in the franchise agreement.
4. Organise Mediation
The Code establishes the Office of the Franchising Mediation Adviser (OFMA) to offer dispute resolution services to the franchisee and franchisor. It is likely to be a clause in your franchise agreement that refers to the use of mediation to resolve a dispute. If the dispute is not resolved within three weeks of receiving a dispute notice, then the OFMA can step in to organise a mediation session and to facilitate any correspondence between the parties.
5. Get Legal Advice
If you are at the stage where you have followed all the dispute resolution steps of your franchise agreement and are ready to move towards going to court, you will need to understand the legal basis for your claim. This means that the complaint you have against the franchisor needs to have a cause of action.For example, a cause of action may include a breach of contract or misrepresentation. A lawyer can provide you with their professional opinion on the strength of your cause of action. This is a significant step before any dispute goes to court as litigation can be a costly investment.
Legal due diligence is a key part to your success and these tips are important to keep in mind before, during and after you become a franchisee. If you have any questions, let our franchise team know on 1300 544 755.