The idea behind a franchise system is to build up a brand and then allow others to use the reputational strength of this brand, as well as the effective management systems to successfully branch out into new areas and expand the brand and business model. Without a system of compliance this would be impossible to achieve. Speak with a franchise attorney if you’re unsure of your responsibilities of compliance.
If you’re about to become a franchisee, ask yourself a couple of questions:
- Are the established practices of the franchise in accordance with the Franchising Code of Conduct and the Australian Consumer Law?
- Is compliance with the franchise agreement possible?
To decide if compliance is possible in your particular franchise arrangement, you (and your franchise solicitor) should go through every document with a fine-toothed comb, particularly the disclosure document and the franchise agreement. Whatever you do, don’t be lazy with reading every document, even if your franchise consultant assures you otherwise.
Ask your franchisor to provide you with your own version of the operations manual that will spell out how the franchisor and franchisee are to cooperate, as well as their individual responsibilities. By checking the operations manual, you are qualifying the ‘system’ as legitimate and tested and making sure you can adhere to its rules and regulations. Franchise solicitors can help you make this assessment.
It might be the case that the franchisor denies you the right to review the operations manual before you have actually entered some agreement. If this happens, request to view it at the headquarters of the franchisor.
To make sure a particular system complies with the Code of Conduct, have a read of the disclosure document. Again, a franchise solicitor will help you review this document.
How do you deal with systems that are not compliant?
The franchise system might not be compliant if it doesn’t do any of the following:
- Give full disclose of the franchise system’s important events, such as sales figures, current franchisees and franchisees who have terminated their agreement for one reason or another;
- Give financial reports for auditing of the advertising fund;
- Be able to deliver the last two financial statements or an audit of the franchisor dating back no more than 6 months; and
- Give full disclosure of any legal issues the franchise may have previously encountered.
Does the Franchisers Code of Conduct always apply?
Even if an agreement is called by a different name, but still satisfies the definition of a franchise agreement according to the Code, it will be governed by the Code.
In other words, any agreement, whether written or otherwise, that follows a set of management rules, requires the paying of regular fees and uses the trademarks of an established company in the running of the business is probably a franchise.
Similar to other commercial relationships, the legislative requirements of the Australian Competition and Consumer Commission also apply to franchising. As the watchdog over non-compliance, penalties, such as fines, can be very hefty. If you’re operating under a system that you believe might be non-compliant, speak with a franchise solicitor to avoid becoming liable as franchisee.
When franchisors do not introduce systems that comply with the law, ordinarily it will be their own fault. The consequence, however, might be that they are made to introduce a compliance agenda, which can impact the entire franchise system under which you’d be operating.
Research and familiarize yourself with the Code. It’s the franchising bible, so to speak, and can give you guidance on your rights and responsibilities. Speak with other ex-franchisees who have jumped through the franchise hoops. They can provide invaluable insight into the system you’re considering, expanding on what did and didn’t work for them in their experience.
And finally, speak with a franchise solicitor today to get clarity on any of the numerous issues and documents you’re inevitably going to have to read and understand. It’s a huge investment for a huge period of time, so get as much help as you can. Contact LegalVision on 1300 544 755.
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