The new Franchising Code of Conduct was published 5 December 2024 and will commence 1 April 2025. A limited number of changes (eg deletion of the Key Facts Sheet requirement) simplify franchise regulation. Other changes will require franchisors to make some amendments to their franchise agreements and disclosure document. The timing of those changes will need to be considered, particularly given some lack of clarity on commencement of the new requirements and a number of exceptions to the 1 April commencement date.

The following is a summary of some of the key changes to the Code:

• The Code has been renumbered, however, only minor changes have been made to the Disclosure Document numbering.
• The requirements to create, update and disclose a Key Facts Sheet have been removed.
• Clause 23 provides that franchisees who have (or recently had) another substantially identical franchise agreement with the franchisor for a substantially identical business may opt out of receiving a disclosure document and copy of the Code in relation to a further franchise.
• The reference to a franchisor not taking a non-refundable payment in connection with a proposed franchise agreement prior to completion of the 14 day disclosure period has been removed. The new Code provides any payments made during the 14 day “consideration period” must be repaid within 14 days if a prospective franchisee requests this in writing during the consideration period. The status of deposits paid prior to disclosure being made under the Code is unclear. Arguably such payments are not regulated by the new Code.
• Clause 31 amends the requirements for annual financial statements of “specific purpose funds” (previously “marketing funds” or “cooperative funds”). The statement must include the percentage of total income spent on each of:
  • Expenses permitted under clause 61(4)(a) (ie expenses of a kind disclosed in the disclosure document, legitimate expenses for the specified purpose or expenses approved by a majority of contributing franchisees); and
  • Costs of administering and auditing the fund.
  The transitional provisions delay commencement of this change for specific purpose funds which were not captured by the old Code until 1 November 2025.
• The list of materially relevant facts requiring prompt disclosure to franchisees has been amended to include a requirement to disclose proceedings under subsection 558B(1) or (2) of the Fair Work Act.
• The requirement to provide notice prior to the ending of a franchise agreement has been amended to also require notice of whether the franchisor intends to neither extend the agreement nor enter into a new agreement.
• Clause 37(3) adds to the record keeping requirements. Franchisors must now also retain documents given to franchisees or prospective franchisees under the Code for at least 6 years.
• The clause permitting franchisors to charge an initial fixed amount for legal document costs has been amended to provide the amount must not exceed the reasonable and genuine costs of the relevant legal services.
• The limit on application of restraint of trade provisions following expiry in specific circumstances has been amended to prohibit franchisors from entering into agreements including restraints which would apply in those circumstances. Further, the new Section 67 prohibits a franchisor from relying on, or purporting to rely on, a restraint of trade clause that would apply in these circumstances. Accordingly, franchisors should review their restraint of trade provisions to ensure they are excluded from applying in the circumstances listed in clause 42 (generally, where a compliant franchisee seeks a new agreement on expiry but is denied both that agreement and genuine compensation).
• New Section 43 requires all franchisors (other than new vehicle dealership franchisors – addressed in section 45) to ensure their agreement provides for a franchisee to be compensated if the agreement is terminated before it expires because the franchisor:
  • withdraws from the Australian market; or
  • rationalises its networks in Australia; or
  • changes its distribution models in Australia.
  The provision must specify how the compensation is to be determined, with specific reference to the following:
  • lost profit from direct and indirect revenue;
  • unamortised capital expenditure requested by the franchisor;
  • loss of opportunity in selling established goodwill; and
  • costs of winding up the franchised business.
  Further, the agreement must provide that, in these circumstances, the franchisee may return, and the franchisor must accept and buy back or compensate the franchisee for:
  • all the outstanding stock of the franchise purchased by the franchisee that was specified by the franchisor and required in order to operate the franchise in accordance with the franchise agreement or any operations manual (however described);
  • all the essential specialty equipment, branded product or merchandise purchased by the franchisee that:
    • was specified by the franchisor and required in order to operate the franchise in accordance with the franchise agreement or any operations manual (however described); and
    • cannot be repurposed for a similar business.
  It is important to note that these provisions do not apply where a franchise agreement is terminated for default or in other circumstances not listed above. Further, they do not apply where the agreement expires.
  Finally, Section 43(5) prohibits a franchisor from entering into a franchise agreement that contains a provision that purports to exclude any compensation to which the franchisee may be entitled, other than under the agreement, if the agreement is terminated before it expires other than because the franchisee has breached the agreement.
  Under the transitional provisions these new requirements will not apply until 1 November 2025 (see below).
• The cooling off provisions have been amended to provide the ability for a franchisee to opt out of its cooling off rights if the franchisee has (or recently had) another substantially identical franchise agreement with the franchisor for a substantially identical business.
• The provisions regulating termination on short notice have been amended. The requirement to give 7 days prior written notice of a proposed termination remains, however, the ability of a franchisee to further delay termination by requiring urgent dispute resolution has been removed in relation to the following grounds:
  • The franchisee no longer holds a licence that the franchisee must hold to carry on the franchised business.
  • The franchisee becomes bankrupt, insolvent under administration or a Chapter 5 body corporate.
  • The franchisee is a company that is deregistered by the Australian Securities and Investments Commission.
  • The franchisee is convicted of a serious offence.
  This also applies to the following new grounds for termination (if they are included in the franchise agreement):
  • A court is satisfied that the franchisee has committed a Fair Work serious contravention of a Fair Work civil remedy provision.
  • A court is satisfied that the franchisee has contravened the section concerned section 245AAA, 245AAB or 245AAC of the Migration Act 1958.
  • The franchisee is convicted of an offence against section 245AAA, 245AAB or 245AAC of the Migration Act 1958.
• Section 63 now provides a franchisor must not disclose a former franchisee’s personal information to a prospective franchisee unless:
  • at least 14 days before doing so, the franchisor informed the former franchisee, in writing, that the former franchisee may give a written request that their information not be disclosed; and
  • the former franchisee has not given such a written request to the franchisor.
  This change is relevant to the disclosure of details of former franchisees under item 6(4) of the disclosure document.
  Actions franchisors may take to address this change may include:
  • Writing to any former franchisees listed in item 6(4) to advise them that they may request for their information to be withheld. This should be attended to at least 14 days before completing the update of the disclosure document to address the Code changes. Any requests from franchisees for the withholding of information should be adhered to in updating item 6(4).
  • Before finalising any future disclosure document update, writing to any former franchisees to be added to item 6(4) to advise them that they may request for their information to be withheld. It is not clear whether a consent to inclusion of this information given under a franchise agreement (ie before the franchisee becomes a “former franchisee”) will suffice. Some franchisors may seek to rely on such consents to avoid the administrative burden of writing to former franchisees prior to completing each disclosure document update.
• The new Section 65 prohibits franchisors and their associates from requiring franchisees to pay costs of legal services relating to preparing, negotiating or executing a franchise agreement or documents relating to the agreement, other than a fixed initial fee permitted under Section 65(2). This extends the current prohibition on franchisors “entering into” a franchise agreement which provides for recoupment of such costs.
• Similarly, the new Section 66 prohibits a franchisor from requiring a franchisee to pay the franchisor’s dispute resolution costs. Currently the prohibition is limited to entering into agreements which provide for this.

DISCLOSURE DOCUMENT

Relatively few changes have been made to the form of the Disclosure Document prescribed under the Code:

• The form of the numbering has been slightly amended.
• The reference to the Key Facts Sheet has been deleted.
• Current proceedings under subsection 558B(1) or (2) of the Fair Work Act must now be disclosed at item 4.
• For events listed at item 6(4) (eg transfers, terminations, closures) the Code now specifically requires inclusion of telephone numbers and email addresses for former franchisees (if available and if permitted to be disclosed under section 63).
• Insertion of a new item 9(f) confirming whether the franchisee may face competition from businesses not associated with the franchisor.
• Adoption of the new term “specific purpose fund” in place of “marketing fund” or “cooperative fund”.
• New items 14(1A) and (1B) relating to significant capital expenditure have been inserted. This is likely to be a structural/numbering (rather than substantive) change for many franchisors who have already included the required information in their disclosure document to address the restrictions on requiring significant capital expenditure.
• Amendments to item 15 regarding specific purpose funds are required. In particular, it will be necessary to attach the most recent annual financial statement for any fund. Presently a summary of expenditure is sufficient.

TIMING OF CHANGES

Generally, the new Code applies to:

• franchise agreements entered into, transferred, renewed or extended on or after 1 April 2025 (on or after the day they are entered into, transferred, renewed or extended); and
• conduct engaged in on or after that date in relation to such agreements.

The old Code continues to apply to existing franchise agreements and conduct relating to the same until they are transferred, renewed or extended.

However, the following exceptions apply:

• The new power of the Ombudsman to publish details of a franchisor’s refusal to engage in dispute resolution processes applies to agreements entered into, transferred, renewed or extended on or after 1 January 2015.
• The new requirements regarding including provisions in agreements for compensation for early termination in specific circumstances and regarding provision of a reasonable opportunity for return on investment, do not apply to agreements entered into, transferred, renewed or extended before 1 November 2025.
• The provisions of the new Code relating to specific purpose funds will not apply to funds which are not captured by the old Code until 1 November 2025.
• New disclosure documents created before 1 November 2025 need not include the new disclosure items relating to capital expenditure. This may not be material as under the old Code many franchisors include the substance of these disclosures.
• An old form disclosure document may be given before 1 April 2025 for a franchise agreement proposed to be entered into, transferred, renewed or extended on or after 1 April 2025 (Clause 99).
• End of year reporting for marketing and cooperative funds which is completed before 1 November 2025 can be completed in accordance with the provisions of the old Code (Clause 100). Further item 15 of the disclosure document relating to marketing and cooperative funds need not be updated before this time.

The transitional provisions relating to the required timing for updating disclosure documents to comply with the new Code are unclear. We expect the industry will welcome further commentary from Government regarding its intentions in this regard. Based on the wording of the new Code, franchisors should make some amendments to their franchise agreement template and disclosure document by 1 April 2025.

Please contact us if you have any questions regarding the new Code.