Australian Commission May Audit Franchisors, Seek Redress for Franchisees, Provide Warnings

This posting was written by John W. Arden.

Amendments to the Australian Franchising Code of Conduct, announced on November 5, will enable the Australian Competition and Consumer Commission to conduct random audits of compliance with the Code, seek redress on behalf of all franchisees subject to a particular franchise agreement, and issue public warnings “about rogue or unscrupulous” franchisors.

The changes came in response to a December 2008 report by the Joint Committee on Corporations and Financial Services and the Senate Standing Committee on Economics and took into account comments on a government discussion paper on franchising and state franchising reports.

The Franchising Code will be amended to state that it does not limit any common law requirement of good faith in relation to a franchise agreement to which the Code applies and to clarify parties’ obligations with respect to end-of-term arrangements and mediation.

Good Faith, Pecuniary Penalties

The government did not implement the parliamentary report’s recommendations to provide statutory requirement of good faith or pecuniary penalties for breach of the Franchising Code of Conduct.

“The Government accepts the intent of the good-faith recommendation of the report of the Joint Committee on Corporations and Financial Services (the Ripoll report) and will introduce measures into the Franchising Code to prevent behaviors that are inappropriate in franchising agreements,” said the media release from the Small Business Minister Craig Emerson.

Study of Unconscionable Conduct

An expert panel will be established to investigate and report on the need to add further provisions to the Franchising Code to prevent behaviors inappropriate in a franchise agreement. The panel will consider whether to incorporate into the Australian Trade Practices Act a list of examples of unconscionable conduct or a statement of principles regarding unconscionable conduct.

The panel will consult with representatives from franchising and retail tenancy, small business organizations, the Australian Competition and Consumer Commission, and other interested parties. It will issue a report by the end of January 2010.

A November 5 media release on the announcement appears here on the website of the Australian Government’s Ministers for Innovation, Industry, Science and Research.