Podcast – Code update

Amie
Hello and welcome. My name is Amie Larter and this is the Buying a Franchise podcast, vital listening for anyone interested in buying or that’s in the process of buying a franchise. As always, I’m here with franchise business editor Sarah Stowe – welcome Sarah.

Now Sarah, there’s been some crucial legal changes within franchising that came out of the review of the effectiveness of the franchising code. Can you fill us in on the outcomes and what they mean?

Sarah
That’s right Amie.To begin with, I’ll explain why there was a review. The old Franchising Code of Conduct, we’ll call it the Code, was ending this year, so it made sense for there to be a fine-tuning of the code’s content. The code, which is mandatory, has to the goal of boosting franchisee protections while also reducing red tape for franchisors.

It’s important to realise that the changes we are highlighting here are a small part of the Code, which essentially aims to set rules for how franchisors and franchisees work together.

If any of our listeners have tuned in to our existing podcasts on the Code, or the disclosure document, they of course will notice changes – one of which is upfront in the buying process – there is no longer a Key Facts Sheet required from the franchisor. The essential information provided in this will now be included in the disclosure document.

For anyone new to the franchising sector, it’s important to understand what elements are included to new agreements to ensure they are reading and signing compliant documents.

Amie
So this Code is now law, Sarah?

Sarah
It is. It came into effect on 1 April. It’s important to note though there is a transition phase for some of the new regulations which won’t be enforced until November 2025.

Amie
Shall we talk first about the elements in the Code which are already live and relevant to franchise buyers poised to purchase their business?

Sarah
Of course. Many of the changes are relevant to franchisors’ documentation but before we get into this we’ll take a look at the Franchise Disclosure Register, a free register hosted on the Australian Government’s Treasury’s website. This is where franchise buyers can search for a particular franchise business and glean essential information about the brand in question.

It is compulsory for franchisors to upload information on the Register, and under the new code they have to add details relating to legal judgements. This means anyone searching brand information can find out if a franchisor, a director or an associate of the business has been convicted of a criminal offence, or had a final judgement in a civil case, or been declared bankrupt or insolvent, within a certain time period.

Franchisors must also reveal on the Register if their franchise agreement provides for dispute arbitration.

Amie
All useful information Sarah, for someone wanting to invest in a franchise business, and know who is running the business. Shall we turn now to details around franchisor documentation?

Sarah
Let’s start with the disclosure document which a franchisor hands to a franchise buyer early on in the buying process. This document must now disclose whether the franchisee could face competition from businesses not associated with the franchisor.

The disclosure document must also reveal if the franchisor has current litigation proceedings regarding workplace relations or independent contractors.

An existing franchisee ready to sign a renewal or a new franchise agreement that is the same or substantially similar to the existing agreement, can now opt out of both receiving Disclosure Documents and the mandatory 14-day cooling off period.

Restraint of trade is one notable change that effects what happens after a franchisee’s term ends. Franchisees choosing to leave the business are still subject to restraint of trade clauses however franchisors cannot enter into an agreement that contains a restraint of trade clause that would be used if the franchisor themselves have refused to renew or extend the agreement, or not offered a renewal option.
Amie
So what if the franchisee decides not to renew the agreement, but wants to carry on with the business under a new name?
Sarah
In these instances, Amie, the restraint of trade stands. This new rule only applies if the franchisor is the one walking away from the relationship.
Amie
What other changes do franchise buyers need to be aware of, Sarah?
Sarah
Another key shift gives franchisors the power to terminate an agreement in just seven days if the franchisee is involved in serious misconduct.
Some of the instances the code mentions as serious misconduct are bankruptcy, wage theft, ASIC deregistration, a serious Fair Work contravention and conviction of a serious offence.
There is normally a meditation process for termination but this is removed in cases of serious misconduct.
Now there are some practicalities to enforcing this, because there still needs to be due process, but it aims to provide the franchisor with a swift solution to remove franchisees whose activities or presence is in some ways damaging the brand.
Amie
Does the franchisee though have any chance to challenge the termination Sarah?
Sarah
That’s a good question Amie. There are two things to note here: firstly, a franchisor can provide a franchisee with more time to address the grounds for termination. Secondly, the code allows a franchisee to enforce their legal rights if they feel the franchisor should not be terminating their franchise agreement.
There’s one more addition to the code that is already live, and that’s calling out uncooperative franchisors. The code now allows the Australian Small Business and Family Enterprises Ombudsman to publicise, in any way it seems fit, the names of franchisors who don’t engage in an alternative dispute resolution.
Amie
So that’s really pointing the finger at those franchisors who aren’t willing to mediate with their franchisees. That seems a good move. Sarah, we’ve looked at what affects franchise buyers right now. What about the upcoming changes?
Sarah
A headline change is the requirement that franchise agreements give franchisees a reasonable opportunity to make a return on their investment.
This has caused some consternation among franchisors and their legal advisors, because there is no clear guideline as to what equates to a reasonable return.
What this doesn’t equate to is a guarantee of profits for franchisees; instead the intent is to ensure a franchise agreement is structured to give franchisees the opportunity to run a viable business.
Now you might say that every franchisor should be giving franchisees this opportunity – after all, that’s what they are offering. So a little bit of history – this was a rule for new car dealership franchises introduced after a Parliamentary enquiry found some agreements put too many obstacles in the way for a franchisee to really stand a chance of success.
This inclusion has now been adopted in the Franchising Code.
Another key inclusion to note is compensation for an early exit. What does this mean? Well, if the franchisor downsizes or closes the business, or significantly changes the business model so franchisees can no longer operate, they may be entitled to some compensation.
Now this could be as simple as the franchise buying back unused stock or equipment, and paying some compensation for future loss of business.
Again, there is lack of clarity around the details, so this will be something to watch.
Another change which we will see enforced from November this year is to the marketing fund. This was created to be a resource for the franchisor to use in promoting the brand overall, and it had specific rules around it. Now the use has been extended to fund other projects such as an annual conference or IT funds.
The newly named and shaped specific purpose fund does have similar requirements to the marketing and cooperative funds under the old code but whoever is administering the fund must provide details about how much of the total income is spent on the cost of administering or auditing the fund.
That pretty much rounds up the changes affecting franchise buyers. Because some of these changes are more demanding for franchisors to implement and the Code was only given the final approval right at the end of 2024, franchisors have been given a grace period to get everything in place. But from November 2025 franchisors must be compliant with the new code.
And remember, this is a mandatory code, not voluntary.
Amie
Thanks for the insights Sarah. As we mentioned at the beginning of this podcast, this is an update on the Code, so for more details on what the code does, and for insights into the disclosure document and franchise agreements, check out our podcasts on these important topics.
We will add links in the show notes to key resources, including the code itself.
As always, we recommend taking legal and accounting advice, preferably from a franchise-experienced professional, before signing up to a franchise.
Thanks for listening.

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