Franchisor’s Breach of the Franchising Code of Conduct
The Franchising Code of Conduct is a mandatory industry code under Australian law. It is legally binding, and any breach may result in significant civil penalties and, in some cases, may entitle the franchisee to seek termination of the Franchise Agreement, provided the required dispute resolution procedures have been followed.
Common Breaches of the Franchising Code by Franchisors
There are various ways in which a franchisor may breach the Code, including but not limited to:
- Failure to act in good faith
All parties to a franchise agreement are legally obligated to act in good faith in all dealings. A failure to do so is a breach of the Code. - Non-compliance with dispute resolution procedures
Franchisors must engage in the prescribed dispute resolution process when a Notice of Dispute is issued. Ignoring or failing to participate in this process constitutes a breach. - Failure to provide proper disclosure
Franchisors are required to provide a complete and up-to-date disclosure document to prospective and renewing franchisees. Providing incomplete, outdated, or misleading disclosure material may lead to penalties. - Improper termination of the agreement
If a franchisor seeks to terminate the Franchise Agreement without following the termination provisions set out in the Code and agreement, it may constitute a breach. - Mismanagement of the marketing fund
Franchisors must manage the marketing fund transparently and in accordance with the Code, including providing annual financial statements and using the fund solely for legitimate marketing purposes. - Non-compliant documentation
All franchise documents, such as the Franchise Agreement, Key Facts Sheet, and Disclosure Document must comply with the Code’s prescribed form. Failure to do so may render them legally deficient.
Frequently Asked Questions
What is the Franchising Code of Conduct?
It’s a legally binding code under Australian law that governs how franchisors and franchisees must behave.
How might a franchisor breach the Code?
Common breaches include:
- Failing to act in good faith
- Withholding required disclosure
- Improper contract termination
- Ignoring dispute processes
- Mismanaging the marketing fund
What can I do if the franchisor breaches the Code?
You may seek compensation or termination of the agreement, but must follow formal dispute resolution steps first.
Are there penalties for franchisors?
Yes, Breaches can result in civil penalties, regulatory action, or legal consequences.