There have been a number of amendments to the Franchising Code effective since 1 July 2010. In summary these changes aim to better protect franchisees.
The recent amendments are as follows:
Disclosure Requirements
Franchise Failure
Disclosure document must now provide that, like any business, the franchise (or franchisor) could fail, and that this could have consequences for the franchisee.
Payments to TPs
Franchisor must now disclose details of any payments that are within the franchisor’s knowledge or control, or are reasonably foreseeable by the franchisor, that are payable by the franchisee to a person other than the franchisor (or an associate of the franchisor). (Previously, the franchisor was only required to disclose payments payable by the franchisee to the franchisor (or an associate of the franchisor) or to be collected by the franchisor (or an associate of the franchisor) for another person.)
Significant Capital Expenditure
A franchisor must now disclose whether it will require the franchisee—through the franchise agreement, the operations manual (or equivalent) or any other means—to undertake unforeseen significant capital expenditure that the franchisor did not disclose before the franchisee entered into the franchise agreement.
Attribution of Legal Costs
A disclosure document must now state whether the franchisor will attribute the franchisor’s costs incurred in dispute resolution (including legal costs) to the franchisee.
Unilateral Variation
For franchise agreements entered into in the financial year starting on 1 July 2011, 1 July 2012 or 1 July 2013, franchisors are now required to disclose the circumstances in which they have unilaterally varied a franchise agreement since 1 July 2010. For franchise agreements entered into after the financial year starting on 1 July 2013, franchisors must now disclose the circumstances in which they have unilaterally varied a franchise agreement in the last three years. Franchisors are also now required to disclose the circumstances in which they may unilaterally vary the franchise agreement in the future.
Confidentiality
Franchisors must now disclose whether they will impose a confidentiality obligation on a franchisee and, if so, details of the matters the obligation may cover. These include:
- outcomes of mediation;
- settlements;
- intellectual property;
- trade secrets; and
- particular aspects of individual agreements, such as fees.
Termination/Renewal Conditions & Costs
Disclose details of the arrangements that will apply at the end of the franchise agreement (e.g. options to renew, extend scope of franchise or enter into a new agreement, exit payments, details applying to unsold stock, marketing material and how prices will be determined, rights to sell the business at the end.)
Transfer or Novation
A franchisor must disclose whether it will amend or require the amendment of the franchise agreement on or before the transfer or novation of the franchise.
Terms
The concept of novation has been introduced into the code. Novation is defined as the termination of a franchise and entry into a new franchise with a proposed transferee on the same terms as the terminated franchise. The rules that apply to transfer now also apply to novation.
Notice of Renewal
A franchisor is now required to notify a franchisee at least six months before the end of the term of the franchise agreement of the franchisor’s decision:
· to renew or not to renew the agreement; or
· to enter into a new agreement.
If the term of a franchise agreement is less than six months, the franchisor must notify the franchisee of its decision at least one month before the end of the term of the agreement.
Good faith
Nothing in the code limits any common law obligation of good faith that applies to the parties to a franchise agreement.
Dispute Resolution
Reconciliatory Manner
The code states that if either party refers a dispute to a mediator, both parties must attend the mediation and try to resolve the dispute.
The code now provides that a party will be taken to be trying to resolve a dispute if they approach the resolution of the dispute in a reconciliatory manner, including by:
- attending and participating in meetings at reasonable times;
- at the beginning of the mediation process, making their intentions clear as to what they are trying to achieve;
- observing any applicable confidentiality obligations; and
- not damaging the reputation of the franchise system (e.g. by providing inferior goods or services).
Costs of Mediation
The parties to a dispute are equally liable for the costs of mediation unless they agree otherwise.
The code now provides that costs of mediation include:
- the cost of the mediator;
- the cost of room hire; and
the cost of any additional input agreed by both parties to be necessary (including expert reports).
