Franchising Law Changes Announced after 2013 Wein Review
Tuesday 8 April 2014 @ 8.35 a.m. | Trade & Commerce
The Government has released for public consultation an exposure draft of amendments to the Franchising Code of Conduct (the Code) and relevant provisions in the Competition and Consumer Act 2010 (Cth).
Background to Changes
On 4 January 2013, Mr Alan Wein commenced an independent review of the Franchising Code of Conduct, with the review required to inquire into the efficacy of the amendments to the Code contained in the:
- Trade Practices (Industry Codes – Franchising) Amendment Regulation 2007 (No 1); and
- Trade Practices (Industry Codes – Franchising) Amendment Regulation 2010 (No 1).
The franchise sector has been regulated by the compulsory code since 1998, but to date it does not include penalties for breaches.
Further, the review was required to inquire into:
- good faith in franchising;
- the rights of franchisees at the end of the term of their franchise agreements, including recognition for any contribution they have made to the building of the franchise; and
- the operation of the provisions of the Competition and Consumer Act 2010 as they relate to enforcement of the Franchising Code.
When the review was completed, there were 18 recommendations made which were not discussed nor implemented due to the Federal election.
Current Reforms Proposed
On 2 April 2014, the Minister for Small Business, the Hon Bruce Billson MP, released the ‘Future of Franchising’ statement, which outlines the Government’s franchising policy reforms and builds on the 2013 Wein Review last year including:
- Ensuring franchisees and franchisors act in good faith in their dealings with each other;
- Introducing penalties for a breach of certain provisions of the Franchising Code;
- Improving the transparency of marketing funds; and
- Improving disclosure including short form, easy to understand information for prospective franchisees; and
- Cutting red tape by clarifying and streamlining the Franchising Code of Conduct, reducing unnecessary and sometimes unclear provisions.
Exposure Draft Legislation
The exposure draft legislation consists of the:
- Competition and Consumer Amendment Bill 2014; and the
- Competition and Consumer (Industry Codes - Franchising) Regulation 2014
The exposure draft legislation introduces a general duty on franchisors and franchisees to act in good faith during their dealings with each other, enables the Australian Competition and Consumer Commission to issue infringement notices of up to $8500 and to seek penalties of up to $51,000 from courts for serious breaches of the Franchise Code of Conduct.
The legislation also aims to improve the disclosure and transparency of marketing funds and online sales arrangements and to provide prospective franchisees with short form, easy to understand, information regarding the risks and rewards of franchising at an early stage before they become emotionally and financially committed.
Minister for Small Business Bruce Bilson says,
“The proposed changes strike the right balance between the needs of franchisors and franchisees and the unique nature of the relationship between the two.”
The proposed implementation timeframe is with a commencement date of 1 January 2015.
Given the extensive consultation that has already occurred as part of the review, comments are sought only on the technical aspects of implementing the law. There is no intention for the current exposure draft submissions process to reconsider the policy underpinning the reforms. Submissions close on 30 April 2014.
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