Government unveils sweeping changes to franchising law: Your guide to the changes

The federal government has set in motion far-ranging changes to franchise law this morning, including introducing a duty to act in good faith and penalties of up to $51,000. 

The changes follow on from the recommendations made in the 2013 Wein Review and are set to be enacted on January 1, 2015.

The exposure draft legislation introduces a general duty on franchisors and franchisees to act in good faith during their dealings with each other, enables the Australian Competition and Consumer Commission to issue infringement notices of up to $8500 and to seek penalties of up to $51,000 from courts for serious breaches of the Franchise Code of Conduct.

The legislation also aims to improve the disclosure and transparency of marketing funds and online sales arrangements and to provide prospective franchisees with short form, easy to understand, information regarding the risks and rewards of franchising at an early stage before they become emotionally and financially committed.

The proposed legislation is available on the Treasury website for public feedback until April 30, 2014.

Small Business Minister Bruce Billson says the changes will also remove unnecessary provisions from the Franchise Code of Conduct to reduce red tape and compliance burdens on business.

“This red tape reduction for the Franchising Code is estimated to save businesses $8.6 million annually and will allow more opportunities for resources to be invested back into franchise systems to drive productivity, innovation and jobs,” Billson said in a statement.

“The proposed changes strike the right balance between the needs of franchisors and franchisees and the unique nature of the relationship between the two.”

Jason Gehrke, director of the Franchise Advisory Centre, told SmartCompany the changes appear to implement most of the Wein Review recommendations, meaning there is not a lot of difference between the government’s position and that of the former Labor government.

“That makes sense because franchising is not really a political issue,” Gehrke says.

Gehrke says the “biggest surprise” in the proposed changes is the implementation time frame.

“A 1 January 2015 commencement date strikes me as a significant delay given the level of preparation for the draft bill already in place,” he says.

“There was a feeling that something was going to happen and it was going to happen soon and that if it did, it would have lent itself to a July 1 commencement.”

Gehrke says international franchisors will not like some of the changes and may question “how badly” they want to enter the Australian market.

“But the predictions that Australia would be undesirable for international franchisors started circulating in 1998 when the code was first introduced but that hasn’t stopped them coming,” he says.

“If the market conditions are right they will come.”

Gehrke disputes Billson’s claim the changes will save $8.6 million in red tape and says it is “really difficult” to put a figure on the changes outlined in the proposed legislation.

“In addition, that’s not a net figure as there are going to be compliance costs involved in people adapting to the amendments under the Franchising Code of Conduct,” he says.