The Commonwealth Government has released its response to the Franchising Independent Review (Review).

The Government response indicates it accepts the findings of the Reviewer that the Code is “generally fit for purpose.”

For an overview of the Review and the 23 recommendations made which were referred to the Commonwealth government for consideration please refer to our prior article.

Key changes

The Government has agreed to the majority of the recommendations which involve the implementation of short-term changes. Key items to be changed include:

1. Inserting a statement into the Code to ensure all parties bound understand its purpose.

2. The key facts sheet will be merged into the disclosure document provided to franchisees to streamline the pre-entry information for a new arrangement.

3. All franchise agreements are to include the requirement to make a reasonable return on investment and include provisions for compensation in the event of early termination.

4. Legislation will be amended to provide the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) with power to publicly name franchisors who fail to meaningfully participate in alternative dispute resolution.

5. ABSFEO’s Tax Concierge Service will be expanded to support access to low-cost legal advice on alternative dispute resolution matters.

6. Establishment of a taskforce to investigate the implementation of a licensing regime and consult with the franchising sector throughout the investigation.  This taskforce will allow for the Government to investigate a more preventative form of regulation. The Commonwealth Government response indicates that it is aware that the ACCC lacks adequate resources to pursue enforcement action for every breach identified.

Two recommendations have been agreed to only ‘in principle’, due to a need to further evaluate these changes which are considered to be long-term implementations to reduce regulatory burden.

The two agreements made in principle are summarised below:

1. Recommendation 16 – A comprehensive online government resource should be created.

1.1. The Government notes that education and awareness-raising platforms are an important component of effective regulatory regimes.

1.2. This recommendation will be revisited following a decision on licensing being reached.

2. Recommendation 21 – Franchisees should be able to seek a ‘no adverse costs’ order when bringing a matter against a franchisor for breach of the Code or the Australian Consumer Law.

2.1. Improving access to justice for franchisees is supported by the Government, as is finding low-cost means to resolve such disputes.

2.2. ‘No adverse costs’ orders are not a common feature in Commonwealth legislation.

2.3. The government will assess the efficacy of such an order in the context of the administration of justice and ensure there are no unintended consequences for either party involved.

Timing

The Commonwealth Treasury department has indicated that it will:

• commence consultation in the next couple of months with stakeholders in respect of what a proposed licensing regime might look like;

• consider the amendments proposed by the Review with a view to releasing am explanatory  draft for comment prior to December 2024 as the sunsetting date for the Code is in April 2025.

Further statutory reviews of the Code will take place every 5 years to ensure its adequate operation.

What does this mean for franchises

Those involved in franchising and interested in having input into the proposed licensing regime or the Code amendments will need to monitor releases of consultation papers  or explanatory drafts, review these and provide input as they consider appropriate.

The drafting of some of the recommendations into the Code may well need to be more nuanced than the statements to date have indicated to avoid unintended consequences.

This will be a watch this space item that should be kept on the radar.

If you would like to discuss please contact:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au