Updated franchise industry code of conduct now in force

Operators in the $144 billion franchise sector in Australia risk new, heavy fines if they breach an updated code of conduct, which came into effect on 1st January.

The code of conduct aims to provide clearer information to Australians wanting to buy into a franchise with clearer detail about the financial and legal risks, and expectations.

Introducing the new code of conduct, Federal Small Business Minister Bruce Billson explains “there had been some concern about malicious conduct where franchise systems were pushing around franchisees, the mums and dads investing in franchise businesses, and then seeing the same business put up for sale again.

"Where disputes emerged and there wasn't a genuine commitment to pursue mediation, and some examples where franchisees paying marketing funds into an account then learned those funds were being used to pursue legal action against other franchisees."

The new code of conduct focuses on greater information sharing and transparency, and both sides of a franchise arrangement will have an enforceable obligation to act in good faith.

Minister Billson likened the business arrangement to "a commercial marriage", adding “it's all about doing the right thing by your business partner, keeping that adult-to-adult, mutually supportive, shared purpose relationship.

"That's what good franchising is all about; that's why it's so popular."

The Australian Competition and Consumer Commission (ACCC) will oversee a new penalty regime as part of the new code of conduct, including infringement notices of up to $8,500 for companies that breach the code and $1,700 for individuals.

The ACCC can also take more substantial matters to court to pursue penalties of up to $51,000.

Franchise Council of Australia (FCA) General Manager Kym De Britt says that the FCA has welcomed the changes, stating “it's all aimed at making it easier and simpler, and more cost efficient, but (for) people looking at going into franchising there's risks with everything.

"So when someone is looking to go into a franchise they really need to do their homework beforehand.”

Based on population numbers, Australia is the most franchised nation in the world, with franchising particularly popular in the 24/7 fitness sector, children’s play and other sectors such as trampoline arenas.

The massive growth of fitness franchising in Australia, in particular the 24/7 gyms, was described as being “spectacular” in a recent report Gyms and Fitness Centres in Australia from business information analysts IBISWorld (report R9111, published in January 2014).

However, there have been problems with Contours fitness and food franchises Eagle Boy’s Pizza and Krispy Kreme doughnuts.

Last year, the Australian Competition and Consumer Commission (ACCC) began using its audit power to check whether franchisors in fitness industry are complying with the franchising code of conduct, after the sector was found to have generated a disproportionate number of complaints. 

17th December 2014 - LOLLIPOP’S PLAYLAND AND CAFÉ TO OPEN 20TH PLAY CENTRE

12th October 2014 - 24/7 FITNESS TREND SHOWS NO SIGN OF SLOWING

8th August 2014 - CONTOURS SHEDS AUSTRALIAN FRANCHISEES

31st October 2013 - ACCC TO AUDIT FITNESS FRANCHISES 

30th October 2013 - FITNESS BUSINESSES ACCLAIMED AT FRANCHISE AWARDS