2023 Review of the Franchising Code of Conduct announced

Key points:

• On 15 August 2023, Treasury announced the Terms of Reference for the 2023 Franchising Code of Conduct Review.
• Dr Michael Schaper has been appointed to conduct the review and provide a report to The Minister before the end of December 2023.
• A consultation paper will be released by Treasury shortly.

2023 Franchising Code Review (Review)

On 15 August 2023, Treasury announced the terms of reference for the 2023 review of the Franchising Code of Conduct.

The Government has appointed Dr Michael Schaper (former deputy chair of the ACCC) to conduct the Review in accordance with the Terms of Reference.

Dr Schaper will prepare a report to the Minister before the end of December 2023. Dr Schaper is well known to the Franchise sector and has a great deal of experience with small business and franchising. He appears to be a good choice to conduct the review.

Terms of Reference of the Review

The Terms of Reference specify that the Review into the Franchising Code will have regard to the following:

1. Fitness for purpose

• As the Franchising Code is due to sunset on 1 April 2025, the general fitness for purpose of the Franchising Code.

2. Role of the ACCC and ASBFEO

• The role of the ACCC and the Australian Small Business and Family Enterprise Ombudsman in supporting enforcement and dispute resolution under the franchising regulatory framework.

3. Automotive sector regulation

• The role of the Franchising Code in regulating the automotive sector, including:
  • Whether Franchising Code protections already available to automotive franchisees should be extended beyond new car dealerships (for example extending them to truck, motorcycle and farm machinery dealerships).
  • The effectiveness of 2020 and 2021 reforms which:
    • provided for multi‑party dispute resolution and clarified that agency models are captured by the Franchising Code.
    • created new obligations relating to compensation in the event of early termination, and franchisees’ capacity to make a return on investment.
    • provided additional protections to apply at the end of a franchise term including notification requirements and processes for winding down.
    • restricted the franchisors’ capacity to require a franchisee to undertake significant capital expenditure.
    • clarified the operation of the Franchising Code obligation to act in good faith in relation to new car dealerships.

4. Impact of 2022 Reforms

• The impact of 2022 reforms which increased certain penalties available under the Franchising Code to: the greater of $10,000,000 or three times the benefit obtained; or 10 per cent of annual turnover.

5. Franchise Disclosure Register

• From 15 November 2023, which will mark when the Register has been publicly available for one year, provisions in the Franchising Code related to the Franchise Disclosure Register.

Consultation Paper

• The review process will be informed by consultation which allows all interested parties to make submissions. If you are interested in obtaining a copy of the consultation paper you should contact Treasury by email at: franchisingreview@treasury.gov.au to register your interest.

Report to the Minister

• A report will be prepared and must be provided to the Minister for Small Business, the Hon Julie Collins MP, no later than the end of December 2023.
• Where required, the final report will be required to be assessed against the criteria for a post‑implementation review as set out in the Australian Government Guide to Policy Impact Analysis.

What this means to stakeholders

• Stakeholders should obtain a copy of the Consultation Paper when it becomes available and make submissions if they consider appropriate.
• Automotive sector participants (other than for new passenger vehicles or light commercial vehicles) should also consider the effect on their networks if the Government extends the existing additional obligations in Part 5 of the Franchising Code (clauses 46 -52) to other types of Automotive dealerships. This would include for example agricultural farm dealerships and dealers of heavy machinery.
• Part 5 of the Code was amended in 2021 to include certain provisions that only applied to new vehicle dealership agreements for new motor passenger vehicles and light commercial vehicles.
• These amendments included adding prohibitions on entering into a dealer agreement (a) unless the agreement contains specified clauses set out in clause 46A; (b) unless the agreement allows the dealer to make a reasonable return on investment required by the franchisor to be incurred on establishment or during the term of the agreement.
• Part 5 also contains different end of term provisions and obligations to other franchise agreements.
• Accordingly, it looks unlikely that any substantive changes to the Franchising Code will happen before mid-2024.

This article was written by Derek Sutherland, Consulting Principal at Keypoint Law.