More Disclosure Required From Franchisors

Changes to the Franchising Code of Conduct came into force on 1 July 2010. These changes require franchisors to communicate more to help prospective franchisees to make informed decisions, before entering into a franchise. The new amendments are also designed to strengthen the dispute resolution process.

Specifically, the amendments require franchisors to:-

• give 6 months' notice if they are not going to renew a franchise agreement
• disclose to prospective franchisees information on confidentiality obligations
• make clear what kind of obligations a franchisee has in terms of future capital expenditure, or whether there are any requirements to pay a franchisor's legal costs

If you fail to comply with the Code you are in breach of the Trade Practices Act 1974, and the Australian Competition & Consumer Commission can take legal action against you.

Remedies and penalties include injunctions to stop the conduct, compensation and damages, setting aside or varying relevant contracts, and orders for corrective advertising.

The importance of complying with the Code was highlighted recently in a case brought to the Federal Court in Brisbane, in which the Court declared that a franchisor had engaged in unconscionable conduct towards certain franchisees, by demanding, and ultimately obtaining, payment of increases of up to 50 percent in the ongoing weekly fees for access to its national telephone number.

The Court found that the franchisor had no contractual basis for the fee increases and the judgment revealed “misstatement, non-disclosure of information, threats and intimidation, and the abuse of the franchisor’s position of strength.”

Contact Hunter Solicitors to find out more about complying with the obligations of the Franchising Code.