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The Franchising Code of Conduct (Code) aims to be a straightforward piece of legislation that outlines a franchisor and franchisee’s obligations. As with any contractual arrangement, a party to the agreement may fall short of fulfilling their duties according to the terms of the contract or the applicable legislation or common law. This applies in the franchising landscape as well. Franchisors, however, should be wary that non-compliance with the Franchising Code  can lead to enforcement action, not only from franchisees, but also from the Australian Competition and Consumer Commission (ACCC). This article will outline the common actions the ACCC may take if either the franchisee or franchisor contravenes the Code.

Civil Penalties

If you review the Code, as every franchisor should, the document contains many references to civil penalties. Civil penalties refer to the ACCC’s ability to require monetary payment for any breach of the Code. 

All of the civil penalties in the Code are 300 penalty units. This is equivalent to $66,600 per breach of the Code.

 If you are reviewing your obligations according to the Code, be mindful of any reference to civil penalties, especially with regards to:

  • Clause 6(1): This clause refers to your obligation to act in good faith. Good faith is not defined in the Code. However, common law examples outside the franchising context show how a court may interpret “good faith”. This may include being honest with the franchisee or informing the franchisee of any changes to the franchise arrangement.
  • Clause 8(1): these clauses outline that you must have a disclosure document and maintain that document yearly.
  • Clause 15: This clause refers to the set up for any marketing or other cooperative fund, the requirement to prepare annual financial statements and the requirement for the statement to be audited by an independent auditor. Although a marketing or other cooperative fund is not necessary at the commencement of a franchise, it is important that if you set one up,  franchisors are aware of their obligations when it comes to reporting their financial position.
  • Clause 28(3): This clause outlines the contractual termination provisions. For example, if you plan to terminate a franchise agreement, you will need to provide written notice. Additionally, this must include the reasons for the termination. You will also need to comply with any required dispute resolution procedures.

The above clauses are only a small snapshot of the franchisor’s obligations. Many other Code provisions attach the possibility of being charged with civil penalties.

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Going to Court

Civil penalties can only be enforced by the ACCC if they go to court. However, the ACCC will litigate a matter in court if it decides this is the best option for resolving the dispute. These include matters that may have a deterrent effect on other franchisors or impact the public. For example, an issue of paying minimum wages to employees may go to court.

Infringement Notices

Infringement notices are an informal way for the ACCC to enforce the provisions of the Code. Similarly to the civil penalties, an infringement notice can only be issued for the breach of a penalty provision. Again, it is important to not only be aware of your Code obligations, but particularly which clauses carry the possibility of civil penalties.

Unlike civil penalties, financial penalties for infringement notices per breach is $13,320 for a corporation (or $133,200 for a listed corporation) and $2,664 for an individual. You may receive an infringement notice when the facts of the matter are not in dispute, and non-compliance seems to be an isolated occurrence. If you do not pay the infringement notice, the ACCC may take the matter a step further and bring it to court.

Key Takeaways 

The ACCC has the power to enforce the Code as the external body administering compliance. As a franchisor, it is important to be aware of these enforcement possibilities before entering into a franchise. Your franchisee will not be the only one monitoring your obligations, but the ACCC as well.

If you need help with franchising, 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.

Frequently Asked Questions

What is the Franchising Code of Conduct?

The Franchising Code of Conduct is legislation that outlines franchisor and franchisee expectations. Your franchised business must comply with the Code.

What is an infringement notice?

An infringement notice is an informal way for the ACCC to enforce the Code. You may receive an infringement notice when you breach the Code, but the non-compliance is an isolated incident.

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