10 April 2014
Franchising Update – Winds of Change Arrive
Practice Groups:
By Chris Nikou and Travis Payne
Corporate and
Transactional
In previous Franchising Updates1, we reported on the Wein Review of the Franchising
Code of Conduct (Code) and the Abbott Government's response to the recommendations
in the Wein Report.
Antitrust,
Competition and
Trade Regulation
On 2 April 2014, the Government issued its Future of Franchising statement (Statement)
and issued, for public consultation, its exposure draft of amendments to the Code, and to
the Competition and Consumer Act 2010 (CCA) to give effect to the Statement. The
public consultation process will be open until 30 April 2014, with the proposed changes to
come into effect on 1 January 2015.
The proposed changes will not only impact the franchisor/franchisee relationship
generally but also the nature of the documentation between franchisor and franchisee.
Summary of Changes
Key aspects of the proposed reforms to the Code and the CCA include:

Amending the Code to reduce 'red tape' which the Government estimates will save
the franchise sector AUD8.6 million a year.2 This will include:
o removing the double disclosure presently required of master and foreign
franchisors
o removing disclosure obligations in connection with the summation of franchise
agreement provisions in the disclosure documentation
o removing the short form disclosure document from Annexure 2 of the Code.

The introduction of a general duty on the part of both franchisor and franchisee to act
in good faith towards each other to apply to all facets of the relationship.
 The provision of additional documentation, information and transparency to
franchisees including:
o a brief prescribed information statement that sets out the risks and rewards of
franchising
o additional disclosure of online trading activity and the using of marketing or
cooperative funds by the franchisor
o the maintenance of marketing funds in separate accounts
o franchisors advising franchisees of an entitlement to a current disclosure document
upon indicating an intention to renew the franchise agreement.
1
Franchising Update – February 2014; Franchising Update – April 2013; Franchising Update –
February 2013;
2
http://bfb.ministers.treasury.gov.au/media-release/018-2014/
Franchising Update – Winds of Change Arrive

Amending the Code to address areas of identified imbalance in franchise
relationships such as:
o preventing franchisors (subject to certain qualifications) from requiring significant
capital expenditure by franchisees during the term of the franchise agreement
o limiting the ability of franchisors to impose restraints of trade on franchisees
o preventing franchisors from including clauses in franchise agreements requiring
franchisees to pay the franchisor's costs of resolving disputes under the franchise
agreement
o preventing franchisors from requiring franchisees to conduct dispute resolution
outside the State in which their franchise business is located
o requiring company owned franchises to contribute to marketing and other
cooperative funds.

The Australian Competition and Consumer Commission (ACCC) gaining new
enforcement powers to:
o seek civil pecuniary penalties of up to AUD51,000 for breaches of the Code
o issue infringement notices of AUD8,500 to companies and AUD1,700 for
individuals.

The proposed amendments will only apply to franchise agreements entered or
renewed on or after 1 January 2015.
Implications
Should the current public consultation process not result in significant changes to the
exposure draft or the timing for implementation of the proposed amendments, the
franchising landscape will be materially different from 1 January 2015.
For franchisors in particular, some of the 'red tape' will be gone but in its place will be
new obligations. Franchisors will need to carefully review and make any appropriate
changes to their franchise documentation to ensure compliance with the Code, as
amended, and avoid the risk of civil pecuniary penalties or infringement notices being
imposed.
K&L Gates has extensive experience in assisting clients with their compliance obligations
under the Code and the CCA, and we can assist you to prepare for these changes.
Authors:
Chris Nikou
chris.nikou@klgates.com
+61.3.9640.4354
Travis Payne
travis.payne@klgates.com
+61.3.9640.4363
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Franchising Update – Winds of Change Arrive
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