Franchising Code of Conduct – exposure draft

Franchising Code of Conduct Exposure Draft
Submission to Treasury
29 October, 2024

Executive Summary
The Australian Chamber of Commerce and Industry (ACCI) is largely supportive of the
Exposure Draft of the Franchising Code of Conduct (the Code). We particularly welcome:

• A remake approach rather than substantive overhaul: The Code has been remade to
ensure continuity, rather than introducing significant structural changes.
• Inclusion of a clear statement of purpose: The revised Code now includes a clearly
articulated statement of purpose, clarifying its objectives in regulating franchising
practices.
• Transition to five-yearly reviews: The Code will now undergo regular reviews every five
years to maintain relevance and adapt to sectoral changes.
• Reduction of administrative burden for existing franchisees: Streamlining measures have
been introduced, allowing existing franchisees who are taking on a new franchise to opt
out of the cooling-off period. Disclosure obligations have also been simplified,
particularly concerning the provision of disclosure documentation.
• Extension of protections to all franchisees: These requirements represent reasonable
standards of behaviour already observed by most ethical franchisors.

However, we do hold a range of concerns, and make the following recommendations:

• Before moving forward with any amendments, consider the unintended consequences of
broadening protections to all franchise types that previously only covered new vehicle
dealerships.
• To improve clarity, include trucks as well as motorcycles, farm machinery and other
motorised vehicles in the examples provided in the Definitions section.
• Allow mediators on ASBFEO’s panel to set their own fees to attract more experienced
practitioners and enhance the quality of dispute resolution.
• Enhance ASBFEO’s proactive educational role, providing more guidance and outreach to
franchisees and franchisors to prevent disputes.
• Increase promotion of the Franchise Disclosure Register to enhance its visibility, accuracy,
and deterrent effect on poor conduct by franchisors.
• Involve stakeholders in consultation before making any future changes to franchise
disclosure requirements to ensure practical and manageable obligations.
• Eliminate the UCT thresholds to ensure consistent protections for all franchise
agreements, regardless of business size or turnover.

1 | ACCI Submission: Franchising Code of Conduct Exposure Draft
Introduction
The Australian Chamber of Commerce and Industry (ACCI) welcomes the opportunity to provide comment on the Exposure Draft of the Franchising Code of Conduct (the Code).

ACCI represents hundreds of thousands of businesses in every state and territory and across all industries. Our network of 70+ industry associations represent large, medium and small enterprises, many of which are either franchisors or franchisees. Thus, our recommendations on this exposure draft take a measured approach that has the best interests of all parties in mind.

ACCI welcomes the positives evident in this exposure draft, noting that this is a ‘remake’ of the existing Code rather than a significant refresh, aligning with industry’s recommendations. We agree that the Code's continuation in a comparable format is essential for upholding accountability and transparency within the franchise sector, as well as providing support to both current and aspiring franchisees in their business endeavours.
It was pleasing to see the Code’s renewed statement of purpose (s14), providing greater clarity to the franchising community on the reason for the Code’s existence and scope of its capacity to define standards and procedures. The shift to five-yearly reviews for the Code was also welcome, ensuring its effectiveness and responsiveness to sector changes without creating greater review fatigue.

We were also pleased to see that the remade Code streamlines some of the red tape burden for existing franchisees taking on a new franchise, allowing them to opt out of the cooling off period and simplifying disclosure obligations such as receiving disclosure documentation. This will be advantageous to both franchisors and franchisees, cutting through unnecessary bureaucracy and allowing both parties to move forward more efficiently with their exchange.

While we are largely supportive of the remade Franchising Code of Conduct, there are a number of areas where we hold concerns. These will be outlined in greater detail below.

Considerations for the Exposure Draft
Scope of Automotive Franchise Protections
ACCI has consistently recommended that the current Part 5 of the Franchising Code of
Conduct, which safeguards new vehicle dealerships, should be extended to encompass truck, farm machinery, and motorcycle franchisees. These types of automotive franchises share operational structures and investment requirements similar to those of car dealerships, and therefore warrant equivalent protections under the Code.

The exposure draft has taken a broader approach by shifting these protections from Part 5 to Part 4, thereby applying them to all franchise agreements. Key changes include mandating a reasonable opportunity for return on investment and requiring compensation for early termination. While the draft specifies that these measures do not guarantee profitability, it establishes expectations for the alignment of franchise terms with capital

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investment requirements. Additionally, franchisors will be obliged to compensate for a broader range of items if they terminate agreements early, including unsold stock and branded materials that cannot be reused.

ACCI supports, in principle, this extension of our original recommendation. We welcome the intent to protect franchisees, noting that these requirements represent reasonable standards of behaviour already being observed by most ethical franchisors. We do urge a cautious approach, however, that considers potential unintended consequences before moving forward with this change. It is possible that broadening these protections might make franchisors more hesitant to engage with new franchisees, potentially limiting opportunities for smaller operators seeking a pathway into business ownership.

We note that in the definitions provided in Chapter 1 Part 2 of the exposure draft, the definition of motor vehicle (and therefore motor vehicle dealership) has been expanded to mean, “a vehicle that uses, or is designed to use, volatile spirit, gas, oil, electricity or any other power (except human or animal power) as the principal means of propulsion, but does not include a vehicle used, or designed to be used, on a railway or tramway.” While this definition is broad enough to include trucks, we note that they have not been included in the examples subsequently provided, while cars, motorcycles, tractors, motorised farm machinery, construction machinery, aircraft and motor boats have all been listed. These examples of motorised vehicles (including trucks) should always be listed together, given that they should be subject to the same set of protections.

ASBFEO Dispute Resolution Mechanisms
In our response to the Review of the Franchising Code of Conduct (the review), ACCI argued for greater flexibility in fee-setting for mediators on the Australian Small Business and
Family Enterprise Ombudsman (ASBFEO)'s panel. The intent is to attract the highest standard of experienced mediators, thereby improving the quality of dispute resolution under the Code. The exposure draft does not address this aspect, leaving ASBFEO’s current structure unchanged. This omission could mean continued limitations on attracting high- calibre mediators due to prescribed fee structures. We believe this recommendation remains critical to enhancing the dispute resolution process.

In addition to fee-setting, ACCI recommended that ASBFEO should play a more proactive role in educating and supporting both franchisees and franchisors. This would help pre-empt disputes and reduce the cost and time associated with conflict resolution. The exposure draft focuses on accountability by giving ASBFEO the authority to publicise the names of franchisors who do not engage in ADR processes in good faith. While this step promotes transparency and accountability, we do hold some concerns that it does not adequately account for retributive behaviour from the small minority of unethical franchisors, or pay enough attention to other areas where the franchisor may deliberately inconvenience the franchisee.

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ACCI maintains that a more engaged and educational approach could mitigate disputes before they escalate to formal processes.

Franchise Disclosure Register
The Franchise Disclosure Register is a crucial tool for promoting transparency and accountability within the franchise sector. ACCI has suggested greater efforts to publicise and promote the register, encouraging accurate record-keeping and deterring misconduct by franchisors. Although the exposure draft acknowledges the importance of the Register, it does not outline specific promotional strategies. We acknowledge that this may be achieved through non-legislative mechanisms; however, we do wish to reiterate the importance of this recommendation.

Key Fact Sheet
ACCI expressed concerns in our response to the review over the increasing administrative burden of the Key Fact Sheet, noting that since its introduction in 2021, it has grown to require information above and beyond the original intent. We recommended consultations with stakeholders prior to additional requirements being imposed.

The exposure draft eliminates the Key Fact Sheet entirely, instead merging its elements into the Disclosure Document. This change will hopefully reduce administrative burden, giving franchisees one less thing they need to read, and aligning with ACCI’s broader goal of streamlining franchise administration. However, the Disclosure Document should therefore be written in plain language to ensure accessibility, and any future amendments to disclosure requirements should still involve stakeholder consultation to ensure they remain practical and relevant. We would also like to see a system implemented wherein a notification or alert was sent each time a franchisor changes the content of what they have disclosed on the register.

Elimination of UCT Threshold
Finally, we wish to again use this opportunity to advocate for systemic change, not just to the Code but also to the broader legal framework that affects franchise relationships. In our submission to the Review of the Franchising Code of Conduct (the review), ACCI recommended that thresholds for Unfair Contract Terms (UCT) protections be removed entirely. We noted that changes to the UCT Regime that came into effect in November 2023 continue to only apply to franchisees that fall below certain thresholds (as of November
2023, these being businesses with fewer than 100 employees, or an annual turnover below
$10 million).

While raising the number of small and medium businesses to which these protections apply is a positive step, we maintain our concern that these thresholds will create uncertainty for businesses on the cusp of the thresholds. For example, a large franchise (such as a
McDonalds franchise) may employ close to 100 staff during slow months, during which time they are protected by the UCT Regime, but bring on surge staffing during busy periods,

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taking them over the threshold of 100 employees and causing them to lose those
protections. This seems arbitrary and unfair. This will apply regardless of the specific
threshold, which is why ACCI has advocated for the removal of all thresholds. Eliminating
thresholds would ensure consistent protections for all franchise agreements, regardless of
business size.

While we recognise that the Franchising Code of Conduct does not specify the UCT
thresholds, ACCI notes that the UCTs apply to standard form franchise agreements, and
therefore are worth considering in the context of this exposure draft.

For further information or to discuss this submission, please contact Dr Jodie Trembath
(jodie.trembath@acci.com.au) or Samantha McKenna (samantha.mckenna@acci.com.au).

About the Australian Chamber of Commerce and Industry

The Australian Chamber of Commerce and Industry (ACCI) is Australia’s largest and most representative business network. We facilitate meaningful conversations between our members and federal government – combining the benefits of our expansive
network with deep policy and advocacy knowledge. It’s our aim to make Australia the best place in the world to do
business. ACCI membership list can be viewed at www.australianchamber.com.au/membership/current-members/

Telephone 02 6270 8000 | Email info@acci.com.au | Website www.acci.com.au
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