NEWS

Dispute Resolution and the Franchising Code of Conduct Reforms

Recently, the reform to the Franchising Code of Conduct was introduced by the Competition and Consumer (Industry Codes – Franchising) Amendment (Fairness in Franchising) Regulations 2021 came into effect. The regulation amends the Competition and Consumer (Industry Codes – Franchising) Regulations 2014 (‘Regulations’).

Background

The purposes of the reforms, as stated in the Explanatory Memorandum, includes:

  1. Improve and enhance fairness and transparency in franchises;
  2. Enhance welfare of Australians through promoting competition and fair trading in the franchising sector;
  3. Provide mechanisms to protect parties entering into franchise agreements.

Key Changes

Some of the key changes introduced by the reforms include:

  • Introduction of Alternate Dispute Resolution (ADR) Mechanisms;
  • Franchisors to provide additional information (‘disclosure documents’) to potential franchisees before entering into an agreement;
  • Extends cooling off period to 14 days;
  • Introduce mechanisms into the agreement for franchisees to request early termination; and
  • Prohibit the Franchisor from unilaterally amending or varying an agreement with retrospective effect unless there is written consent from the Franchisee.

A majority of the changes came into effect on 1 July 2021, a small number of changes, including ADR clauses, came into effect on 2 June 2021 and the requirement for disclosure documents will come into effect on 1 November 2021.

Dispute Resolution

Schedule 1 of the reform introduces Alternate Dispute Resolution Mechanisms to the regulations by imposing additional functions on the Australian Small Business and Family Enterprise Ombudsman (‘the Ombudsman’) to:

  1. Upon the request from one or more party, appoint an ADR practitioner, being either a conciliator or mediator, to respond and resolve disputes raised via the complaint handling procedure;
  2. Receive information about the handling of the dispute; and
  3. Provide statistical information to the Minister relating to disputes that has been or is being responded to under the complaint handling procedure.

Multi-Party Dispute Resolution

Division 3 of the reforms allows two or more franchisees who have ‘similar disputes’ against the same Franchisor to attempt to resolve their disputes through the ADR process, including the option to refer to a single ADR practitioner to resolve all disputes in a single process.


Implications

While the amendments have just came into effect, it is anticipated that introduction of ADR mechanisms will likely offer significantly enhanced dispute resolutions process that are, relatively, more efficient and less costly and, combined pre-entry disclosure requirements, provide greater protection to current and future Franchisees.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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