In addition to the usual business laws, regulations and requirements, franchisors and franchisees also need to ensure that they comply with the Franchising Code of Conduct, which came into full effect in October 1998. The Code was substantially amended in March 2008 and has since been under further discussion and review by the legislators.
The Franchising Code of Conduct is a mandatory industry code that has the force of law under the Trade Practices Act 1974. The aim of the code is to regulate the conduct of participants in franchising towards each other and to ensure that they are sufficiently informed about a franchise before entering into it. The code also provides a cost-effective dispute resolution scheme for franchisees and franchisors.
What is a Franchise Agreement?
A Franchise Agreement is an agreement (written, verbal or implied) between a franchisor and franchisee with the following characteristics:
- the franchisor grants the franchisee the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor;
- the operation of the business will be substantially or materially associated with a trademark, advertising or commercial symbol that is owned, used, licensed or specified by the franchisor; and
- the franchisee is required to pay, or agree to pay, a fee before starting or continuing the business.
What are the benefits of buying a franchise?
By purchasing a franchise business, you are effectively purchasing a licence to operate a business inside a brand and operating structure. You have the benefit of training and support, operating systems, consistent market presentation, marketing, and product sourcing and buying.
Why is compliance with the Code so important?
Compliance with the Franchising Code of Conduct is mandatory - non-compliance is a breach of section 51AD of the Trade Practices Act (now the Competition and Consumer Act). You then risk having legal proceedings instituted against you by affected parties and/or the Australian Competition & Consumer Commission (ACCC).
Shire Legal can assist you in understanding your rights and obligations under the Franchising Code.
Contact Shire Legal to arrange a consultation with an experienced solicitor.
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