New Franchising Code commences: what franchisors need to know

Introduction

On 1 April 2025, the Competition and Consumer (Industry Codes–Franchising) Regulations 2024 (Cth) (New Code) took effect, replacing the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (Old Code). Certain aspects of the New Code will commence later this year, on 1 November 2025.

Which Code applies to your franchise agreements?

The New Code applies to:

• franchise agreements entered into, transferred, renewed or extended on or after 1 April 2025
• conduct engaged in on or after 1 April 2025 in relation to these agreements.

The Old Code will continue to apply to:

• franchise agreements entered into before 1 April 2025 until those agreements are terminated, transferred, renewed or extended
• conduct relating to those agreements that is engaged in on or after 1 April 2025 (other than conduct relating to the transfer, renewal or extension of those agreements).

What are your obligations in relation to franchise agreements and disclosure documents?

Obligations from 1 April 2025

On or after 1 April 2025, any new franchise agreements that are entered into, or existing franchise agreements that are transferred, renewed or extended, must comply with the New Code.

Franchisors must maintain and update two disclosure documents to:

• comply with the Old Code for franchise agreements before 1 April 2025
• comply with the New Code for franchise agreements after 1 April 2025.

However, the ACCC will accept franchisors maintaining and updating one disclosure document that complies with the New Code.

Franchise agreements must not include a restraint of trade clause that applies in certain circumstances where a franchise agreement expires (and the agreement contains an option for the franchisee to renew or extend the agreement but the agreement is not renewed or extended).

Additional obligations from 1 November 2025

From 1 November 2025, some additional obligations for franchisors will apply, including the following:

• franchisors must comply with additional obligations in their disclosure document, such as:
  • disclosure of the rationale, amount, timing, nature, outcomes, benefits and risks of any significant capital expenditure that may be required of the franchisee
  • providing additional information and documents when franchisees pay into a specific purpose fund
• franchise agreements must provide franchisees a reasonable opportunity for return on the franchisee’s investment and (in some circumstances) provide for compensation for early termination.

What are the main implications for franchisors?

Franchisors should be aware of the implications of the commencement of the New Code, including that:

• franchisors must ensure that their franchise agreement and disclosure document are compliant with the New Code
• franchisors will need to comply with sections 43 and 44 (relating to compensation on early termination and providing a reasonable opportunity for return on the franchisee’s investment, respectively) on and from 1 November 2025
• certain eligible prospective franchisees are now able to opt out from receiving a disclosure document and a copy of the New Code and applicable cooling off periods
• franchisors are no longer required to create, maintain or provide a Key Facts Sheet to prospective franchisees
• franchisors need to comply with the obligation to advise franchisees of their right to request a disclosure document
• a franchisor has two months (instead of 14 days) to provide a disclosure document when requested (a request may be made once every 12 months)
• the New Code has amended the provisions relating to termination of a franchise agreement, in particular:
  • for certain kinds of serious grounds (including findings by a Court that a franchisee has committed a serious breach of a Fair Work civil remedy provision or likewise under the Migration Act 1958(Cth)), franchisors can terminate if they have provided the franchisee seven days’ written notice of the proposed termination and grounds for it
  • for termination where the franchisee voluntarily abandons the franchised business, operates the business in a way that endangers public health or safety, or acts fraudulently in connection with the operation of the business; a franchisor must not terminate the agreement before a notice period of seven days passes without a dispute notice being given
  • if the franchisor receives a dispute notice, the agreement cannot be terminated until the end of 28 days after the day the dispute notice is given
• a franchisor will have certain rights to require a franchisee not to operate the business (or part of it) where the franchisor is proposing to take action to terminate on these specified grounds
• franchisors will now be prohibited from entering a franchise agreement that includes a restraint of trade clause that is inconsistent with the applicable requirements (as well as being restricted from relying on a restraint of trade clause in certain circumstances where a franchise agreement is not extended as noted above)
• the definition of ‘motor vehicle dealership’ in the New Code has been expanded to include servicing or repairing of motor vehicles.

What are the consequences of breaching the New Code?

Breaches of the New Code can result in significant financial exposure for franchisors, particularly in circumstances where a franchisor:

• includes prohibited terms in franchise agreements
• does not meet their obligations to give and receive required information.

Under the New Code, all substantive obligations are now subject to a civil penalty provision (in most cases being a maximum of 600 penalty units). The current value of a penalty unit is $330, therefore 600 penalty units is equal to $198,000 (noting that the value of a penalty unit is subject to change).

It is also important to note that certain breaches of the New Code by a body corporate can result in a maximum pecuniary penalty of the greater of:

• $10 million
• if the court can determine the value of the ‘reasonably attributable’ benefit obtained, three times that value
• if the court cannot determine the value of the ‘reasonably attributable’ benefit obtained, 10% of the adjusted turnover in the preceding 12 months.

Infringement notices

In addition, the ACCC has the power to issue infringement notices where it has reasonable grounds to believe a franchisor has breached a civil penalty provision. Such a notice will set out the alleged breach and the infringement notice penalty amount of either $19,800 for corporations (60 penalty units) or $3,960 for individuals (12 penalty units).

Broader obligations and penalties

It is also important to be aware that, as well as the New Code, various other provisions of the Competition and Consumer Act 2010 (Cth) apply to franchising, such as:

• restrictions on unfair contract terms in small business contracts
• prohibitions on engaging in misleading or deceptive conduct or unconscionable conduct
• restrictions on engaging in anti-competitive conduct, such as exclusive dealing with the purpose of substantially lessening competition.

Pecuniary penalties or other sanctions may also apply for breaches of these obligations.

How can we assist?

Given the potential exposure involved, it is important that franchisors are aware of and comply with their obligations under the New Code.

Cooper Grace Ward is well placed to assist franchisors regarding their obligations under the New Code, as well as preparing any required amendments to franchise agreements and disclosure documentation.

If you wish to discuss any of the matters contained in this article, please contact Phil Vickery or another member of our corporate advisory team.