Posted on July 23, 2021
Hanna Psomoulis
On 1 June 2021 the Competition and Consumer (Industry Codes—Franchising) Amendment (Fairness in Franchising) Regulations 2021 (the 2021 Regulations) were passed, thereby amending the Franchising Code of Conduct contained in Schedule 1 to the Competition and Consumer (Industry Codes—Franchising) Regulation 2014. Whilst most of the amendments took effect from 1 July 2021, some regulations relating to dispute resolution apply to disputes reported as early as 2 June 2021, whilst some changes to disclosure are due to set in from 1 November 2021.
The Minister for Employment, Workforce, Skills, and Small Family Businesses – Stuart Robert, issued an Explanatory Statement. In his statement the Minister expressed that these changes sought to respond to continued and widespread issues between franchisees and franchisors, as identified by the Parliamentary Joint Committee on Corporations and Financial Services in its Fairness in Franchising report.
Issues identified included franchisees being provided with insufficient information before entering into franchising agreements, franchisors engaging in poor conduct, and existing mechanisms for support and dispute resolution being described as ‘not go[ing] far enough to address power imbalance and problematic conduct’.
Dispute resolution
Avenues for dispute resolution have been expanded by the 2021 Regulations. Conciliation is now included as a possible alternative dispute resolution (ADR) avenue, and ADR processes and arbitration are now being held remotely. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) now has the following functions:
- listing and appointing persons who can provide arbitration, conciliation or mediation services to resolve franchise agreement disputes, including ADR practitioners;
- receiving information about disputes under the Franchising Code of Conduct or a complaint handling procedure of a franchise agreement; and
- providing the Minister with data relating to disputes on a regular basis.
Arbitration
Parties are also able to agree in writing to arbitration to resolve their dispute. They are able to include such a provision in the franchising agreement, or execute a separate agreement to achieve same.
Disputes between franchisor and multiple franchisees
Multiple franchisees in similar disputes with the same franchisor are also now able to agree to resolve their dispute collectively. As part of this process, franchisees are able to speak with each other about the dispute notwithstanding any confidentiality requirements under their franchise agreements. If they are unable to resolve the matter themselves, they can seek a single ADR process to hear all the disputes. A single ADR process may be used even in cases where the franchisor does not agree to there being a single ADR process or disagrees with the appointment of the ADR practitioner.
Under the 2021 Regulations it is no longer enough that a party to the ADR process requests the process be terminated. Parties are now required to provide written reasons to that effect before an ADR practitioner will abide by the request. The ADR practitioner is then required to list these reasons in a certificate upon termination of the ADR process.
The following key provisions in Franchise Agreements have tightened the franchisor’s obligations under the new 2021 Regulations, including:
- Pre-entry disclosure;
- Extended cooling off periods;
- Franchisee termination following leasing information;
- Termination of the agreement;
- Marketing funds;
- Legal costs;
- Retrospective variations to franchise agreements;
- Restraint of trade clauses;
- New vehicle dealership agreements; and
- Co-operatives.
If you are a franchisor or a franchisee and are seeking advice in relation to the changes introduced, or would like to know how they affect you more specifically, please do not hesitate to contact Sharelle Staff or Amanda Harrington to discuss same.
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