Australia: Your franchising inquiry cheat sheet

What is the scope of the inquiry?

The Senate inquiry is tasked with determining the operation and effectiveness of the Franchising Code of Conduct (the Code), as well as the Oil Code of Conduct (which deals with the conduct of wholesales and resellers of petrol). In doing so, the Senate set specific terms of reference that it was to consider:

1. the current prescriptive requirements for specific disclosures by a franchisor before the parties enter into a franchise agreement and whether the current disclosure requirements were effective in ensuring potential franchisees could make a fully informed decision. This included considerations such as the disclosure of the likely financial performance of the franchise, as well as key contractual terms such as geographical limitations and termination rights. Also, the inquiry was to consider whether information regarding leasing arrangements and expected running costs (including the costs of goods franchisees are contractually required to purchase through prescribed suppliers) are required to be disclosed sufficiently under the Code;
2. whether the specified procedures for dealing with disputes in the Code are effective;
3. the impact of the changes to the unfair contract provisions in the Australian Consumer Law have had on franchise agreements. In short, the unfair contract law provisions changed on 12 November 2016 to also cover business to business standard form agreements where one of the businesses has less than 20 employees. Agreements under the Code are not exempt from complying with these obligations, unless a term is expressly required by the Code, in which case it can be included.
4. whether other codes (such as the Oil Code of Conduct) contain relevant clauses which should be included in the Code;
5. whether franchise agreement termination provisions specified by the Code are adequate;
6. the imposition of restraints of trade on franchisees who terminate franchise agreements; and
7. the enforcement by the ACCC of breaches of the Code and other relevant legislation such as the Competition and Consumer Act.  

The inquiry had a very broad ambit to consider the franchising industry as a whole and make recommendations as to legislation which would guide future changes. 

What did the inquiry involve?

The inquiry accepted written submissions which addressed the scope of the inquiry up until 4 May 2018. It received approximately four hundred written submissions from not only franchisors and franchisees, but other interested parties such as individuals, companies, franchisee associations and other industry groups, law firms and government departments.

The inquiry conducted public hearings in June 2018. At these public hearings, a range of parties (from franchisees to franchisors, academics and industry groups) were invited to address the parliamentary joint committee in person.

Next steps

The Parliamentary Joint Committee on Corporations and Financial Services will submit a report to parliament by 6 December 2018 with its recommendations in relation to changes to legislation, regulation and government policy. It will then be an issue for parliament as to what recommendations or legislative changes it adopts.

It is very likely that some change will result from the inquiry. In particular, we expect that the Code will be strengthened to require greater disclosures by franchisors. But, time will tell.