Blog / May 3rd, 2022

Double trouble – increased penalties under the Franchising Code targeting franchisors

The Competition and Consumer (Industry Codes—Franchising) Amendment (Penalties and Other Matters) Regulations 2022 (Cth) will amend the Franchising Code of Conduct ("Code") to dramatically increase the penalties imposed on franchisors for non-compliance with the Code.

Key changes:

  1. Mirrored penalties under Australian Consumer Law:

    The civil penalty provisions for the clauses relating to the disclosure of materially relevant facts, association of franchisees, and new vehicle dealership agreements have been amended for a body corporate to mirror the penalty under Australian Consumer Law for false or misleading representations and restrictive trade practices. Under this new penalty, if the court can determine the value of the benefit that the body corporate obtained directly or indirectly and is reasonably attributable to the contravention, franchisors could be liable three times the value of that benefit.

 

  1. Maximum penalties for breach have doubled:

    All other clauses in the Code containing a civil penalty of 300 penalty units, aside from those mentioned above, have either been doubled to 600 penalty units ($133,200) or replaced to mirror the penalty above for a body corporate, or $500,000 for a non-body corporate.

 

  1. New penalties:

    Additional penalties have been introduced to provisions that did not previously carry any penalties. New penalties with a maximum value of 600 penalty units each have been added to the following obligations:

  • a fund administrator must provide the franchisee with a copy of the fund’s financial statement;

  • a franchisor must not unreasonably withhold consent to the transfer of a franchise agreement;

  • a franchisor cannot terminate a franchise agreement on the grounds of a breach that has already been remedied;

  • a franchisor cannot terminate a franchise agreement without providing the franchisee seven days’ notice and reasons for the termination; and

  • a franchisor cannot require a franchisee to undertake significant capital expenditure in relation to a franchised business during the term of the franchise agreement without disclosing this expenditure when the agreement was entered into.

 

  1. Information statement:

    Franchisors are now required to provide a prospective franchisee a copy of the information statement related to the franchise as soon as practicable, and not later than seven days after the prospective franchisee formally applies or expresses an interest in acquiring a franchised business.

 

Should the franchisor fail to do so within this timeframe, it will attract a civil penalty of 600 penalty units.

 

Now is the time to review your franchise agreements before paying the price for non-compliance. Contact Megan Jongebloed or Christian Bird for assistance with your compliance under the Code.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice.  You should not act upon the information contained in this publication without obtaining specific professional legal advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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