The Franchise Code of Conduct is the primary source of a franchisor’s legal obligations. However, it does not exist in isolation. Below, we set out what steps you can take to ensure your franchise is complying with its legal obligations.

The Fair Work Act and National Employment Standards are the primary sources of employee rights in Australia. Franchise industries or sectors such as hospitality, retail and administration are subject to industry awards which determine minimum work conditions relating to wages, penalties and shift requirements.

Every employee should sign an employment agreement that clearly articulates their role and responsibilities and includes operative clauses relating to confidentiality and post-termination restraint of trade. A network-wide master employment agreement which you review and update regularly will help ensure legal compliance.

The Federal Government has recently flagged the introduction of legislation to have franchisors that have a “substantial degree of control” over their franchise networks to take responsibility for franchisee violations of wage conditions that the franchisor knew or “ought to have known.”

Managing Legal Compliance Across the Network

  • Incorporate an employment law module into the initial and ongoing training programs.
  • Implement a formal procedure and policy for dealing with employee complaints internally both at the franchisee and franchisor level.
  • Require franchisees to obtain sign off for all promotions and advertising before implementation. This way, you as the franchisor can check for compliance with the Australian Consumer Law (ACL).
  • Have a privacy policy that you enforce across the network.
  • When auditing franchisees, look for legal compliance as well as financial.
  • Review any standard form contracts or agreements annually.
  • Ensure all ACCC notifications are updated and in place.

Privacy

Franchisors should ensure they have a privacy policy and communicate this clearly to the network and to customers. This is because franchisees and franchisors are likely to deal with “personal information” in their dealings with customers either by:

  • Maintaining a customer database;
  • Requiring information to be left to enter a competition; or
  • Taking a potential customer’s details to refer their work.

In addition to receiving personal information, it is often the case the franchisor, or the franchisee, shares information with some other parts of the franchise network.

It is important you communicate clearly to customers how you intend to use their personal information within the network. Your legal advisor can assist in developing a privacy policy tailored to the needs of your franchise network.

Franchisors should also familiarise themselves with the Australian Privacy Principles (although many franchises are not required to comply with them as they only apply to companies with over $3 million in annual revenue).

Consumer Law

The ACL governs consumer rights relating to statutory warranties, advertising and promotion, and anti-competitive practices.

Once franchises have been set up, the main issues that tend to arise in the consumer law context involve the setting of prices and requiring franchisees to use approved suppliers. These kinds of provisions are critical to ensuring consistency of price and quality throughout the franchise network. These types of arrangements, however, can fall foul of the ACL. In certain cases, a franchisor can obtain an exemption via the ACCC’s notification procedure. You should always seek legal advice on these issues before proceeding.

Another significant ACL issue to be aware of is the requirement not to engage in misleading and deceptive conduct. We commonly see franchise disputes arise in relation to alleged statements the franchisor makes to induce the franchisee to enter the franchise agreement. Misleading and deceptive conduct can also apply to advertising or business practices that the franchisors impose across their network.

ACCC’s Notification Procedure

  1. Franchisor provides details of the proposed conduct and relevant parties
  2. Franchisor pays the lodgment fee
  3. ACCC will apply a “net public benefit test” in its determination whether to allow the exemption

A certain level of risk and commitment comes with entering a franchise agreement. If you want to ensure your policies and procedures are in compliance, get in touch with LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

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This article was an extract from LegalVision’s Franchisor Toolkit. Download the free 32-page toolkit featuring case studies from leading Australian franchisors.

Tim Mak
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