Aust franchising industry gets a code of conduct reform

The Australian Government has accepted 31 recommendations of the Review of the Disclosure Provisions of the Franchising Code of Conduct, which was released recently. Under the reforms, prospective franchisees will be able to contact past franchisees to ask about a franchisor.

"Franchising is an undoubted success story. But despite its overall success, growing industry concerns on the disclosure of information led me to order the review," Fran Bailey, Minister for Small Business and Tourism, said.

While the Review found the Franchising Code was operating effectively, it made recommendations to ensure that prospective franchisees are in possession of as much information as reasonably possible.

"These reforms are about empowering people to make the right business decisions. It will reduce the risks for franchisees by requiring greater disclosure and will help build the long term sustainability of the industry.

"For example, if you were interested in purchasing a franchise, you will now be able to contact a previous franchisee subject to their agreement and ask about a franchisor. Did they deliver what they promised? Were they helpful? Did they help make your franchise a success or a failure?"

Amongst key recommendations agreed by the Government:

- provision to franchisees of audit reports of franchise marketing funds;
- right of franchisors to unilaterally change franchise agreements to be addressed through amendments to the Trade Practices Act 1974; and
a requirement for franchisors to report to their franchisees a material change in the circumstances of the franchise from 60 to 14 days.
- "Of course, no risk can be completely eliminated and it's important for anyone interested in a franchise to check the disclosure document carefully before investing their money," Fran Bailey said.