Report released for the inquiry into the Franchising Code of Conduct

By Warren Scott, Partner, and Cassandra Taylor, Lawyer

The highly anticipated Senate report into the franchising sector was released this morning (14 March 2019) – all 369 pages of it. The Senate inquiry looked into the effectiveness and operation of the Franchising Code of Conduct, and identified the need for a suite of improvements to the franchising industry.

The report, which was tabled by the Parliamentary Joint Committee on Corporations and Financial Services, includes a number of recommendations and proposed reforms to the franchising sector after claiming that the current regulatory system has “manifestly failed to deter systemic poor conduct and exploitative behaviour”.  Some of the key aspects of the report are as follows:

  1. Disclosure – there are a series of recommendations in respect of disclosure including providing the disclosure document in electronic form and greater clarity, consistency and accountability in respect of the use and reporting of marketing funds.
  2. Third line forcing and supplier rebates – the committee has also recommended more transparency and accountability for franchisors who use third line forcing arrangements to obtain financial incentives from suppliers.
  3. Unfair Contract Law – there is a recommendation that unfair contracts legislation apply to all franchise agreements and that unfair contract terms are made illegal, resulting in civil penalties for any breaches.
  4. Fair Exit Rights and Goodwill – the report also recommends that appropriate exit arrangements and termination rights are given to franchisees, to help with alleviating the power imbalance, which currently favours franchisors. 
  5. Whistleblower Protections – the committee also recommends that whistleblowers, such as franchisees and employees, are given greater protection.

The report also contains a number of recommendations in respect of the cooling off period, collective action, dispute resolution and arbitration and the enhancement and alignment of the Industry codes.

For the full report, please click here.

For further information, please do not hesitate to contact us.

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