Franchising Update: A Year in Review
2024 saw the further evolution of the franchising sector including significant regulatory changes as well as notable judgements from the courts and action from the regulator, the ACCC.
This article will looks back on some of the key developments that occurred in the franchising sector in 2024, offering a reminder of changes and developments that occurred and foreshadowing what franchise businesses can expect in this coming year.
As we move further into the new year, we look forward to continuing to provide you with timely updates and insights into the franchising sector.
Key Developments in 2024
Franchisors may be liable for franchisees’ non-payments of employee entitlements
On 4 June 2024, the Federal Court of Australia found that the franchisor, 85 degrees Coffee Australia Pty Ltd, was legally liable for the contravening conducts of eight of its franchisees under the responsible franchisor entity provision.
Although 85 Degress Coffee was not directly involved with the underpayment of workers, 85 degress Coffee was aware that its franchisees would commit the contraventions and failed to take reasonable steps to prevent this from occurring.
If you are a franchisor, it is important to ensure that your franchising business and franchisees are complying with the Fair Work Award entitlements as a franchisor may be held liable and incur significant penalties for its franchisees’ contravening conducts.
You can read more here.
ACCC Enforcement and Compliance Priorities For 2024-25
ACCC announced its for focus its enforcement and compliance activities including in the following areas:
Consumer product, fair trading and competition in environment and sustainability claims;
Misleading and deceptive advertising including:
influencer marketing;
online reviews;
in-app purchases; and
price comparison website.
Unfair Contract Terms in consumer and small business contracts.
Given that some of the focus areas affect franchises, franchisors were put on notice to review their business operations and franchise agreements to avoid adverse action by the ACCC.
You can read more here.
No compensation for loss of goodwill
In the case of Brighton Automotive Holdings Pty Ltd v Honda Australia, the Supreme Court of Victoria ruled that automotive dealers and franchisees are not entitled to compensation for the loss of goodwill when a dealership agreement ends, unless specifically stated in the contract.
This decision reaffirms the findings of a previous case, that legal goodwill attached to the business is lost when the agreement concludes.
Franchising parties should ensure that the franchising agreements include clear terms on compensation for early termination events in light of the changes to the Franchising Code of Conduct commencing on 1 April 2025.
Franchisors should be aware of any representations made
On 1 August 2024, the Magistrates’ Court of Queensland found that Peak Physique Franchisor Group Pty Ltd engaged in misleading and deceptive conduct when they made misrepresentations of ongoing support and profitability of the franchise.
As a result, the franchisee was awarded the difference between the purchase price paid and the actual value of the business at the time of acquisition.
Franchisors were reminded that they should ensure that the valuation of any business has been completed appropriately and that if necessary an independent valuation of the business is retained to substantiate the sale price.
You can read more here.
New Franchising Code of Conduct
The new Code of Conduct is largely set to commence on 1 April 2025 with significant changes being made to the Code.
Two important changes to the Code are the introduction of section 43 and section 44.
Section 43 requires the franchisors to provide compensation to the franchisees in specific events where the franchise agreement is terminated before it expires, or it is not renewed.
Section 44 on the other hand, will require that all franchise agreements must provide franchisees with a reasonable opportunity to achieve a return on the investment.
Both sections significantly increase the risks for franchisors, and it remains to be seen how they will be enforced. If you are a franchisor, you may need to redraft the franchise agreement before April 2025 to avoid penalties.
You can read more here.
Please contact Alicia Hill if you would like more information or would like to discuss any of the above:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Samuel Zhang
Law Graduate
E: szhang@sladen.com.au