Franchisors and franchisees trading in Australia are all subject to the regulations contained in the Franchising Code of Conduct. This is a mandatory code that comes under the Competition and Consumer Act 2010 and the Australian Competition and Consumer Commission is the regulatory body which will investigate alleged breaches.
5 things about the franchising code
Dr Michael Schaper, deputy chairman ACCC, highlights the key points for potential franchisees:
The Code covers franchise agreements, as defined by the Code, regardless of what they are called.
You have rights under the Code both before and after you buy a franchise.
You are entitled to a disclosure document and a franchise agreement – don’t hand over any money or sign anything until you’ve read these documents carefully, received professional advice and spoken to other franchisees.
The Code gives you a cooling off period and rules that apply when a franchisor intends to terminate your agreement.
The Code contains a cost-effective dispute resolution procedure.
When does the Code apply?
It doesn’t matter whether or not a franchise business calls itself a franchise, if there is an agreement that meets the Code’s definition it is subject to the regulations.
When all four of these elements feature, the business is legally considered a franchise:
There is a written, oral or implied agreement.
There is an existing system or suggested marketing plan under the control of a franchisor or associate.
It is a business operating under a trademark or symbol.
There is a fee to be paid to the franchisor by the franchisee (this could be a royalty or a training fee).
Under the Code of Conduct there is a get-out clause for brand new franchisees who are legally entitled to a week-long cooling-off period, says Esther Gutnick, senior associate at MST Lawyers.
“You may terminate a franchise agreement within seven days after either entering into the agreement or making a payment under it, whichever occurs earlier,” she advises.
The Code of Conduct stipulates that if a franchisee exercises his or her cooling-off rights, the franchisor must refund all payments made by the franchisee under the agreement within 14 days, she says.
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