Know Your Rights: Key Protections for Franchisees Under the Code
It is important to understand your rights as a franchisee and the protections available to you under the Franchising Code of Conduct (Code). The Code is designed to promote fairness, transparency and good faith in franchising relationships, helping franchisees make informed decisions and navigate their business with confidence. Obtaining independent legal advice can also help you identify risks, understand your obligations and make informed decisions before or continuing to invest substantial time and capital in a franchise business.
Right to Access Important Information
One of the key protections for franchisees under the Code is the right to receive comprehensive information about the franchise system.
You are entitled to receive disclosure documents and other key information before entering into, renewing or extending a franchise agreement. Existing franchisees may also request a copy of the most recent disclosure document from their franchisor. These documents contain important information about the franchise system, including financial matters, litigation history, fees and other details that may affect your business.
Having access to current information allows you to better understand your ongoing rights and obligations and assess the performance and direction of the franchise network.
Cooling-Off Rights
The Code provides cooling-off rights in certain circumstances, allowing franchisees to terminate a franchise agreement within a specified period (usually 14 days) after entering into the agreement or making certain payments.
This protection recognises that buying a franchise is a significant commitment and provides an opportunity to reconsider the decision if circumstances change.
Right to Request Early Termination
The Code also gives franchisees the right to request early termination of a franchise agreement.
This is a relatively recent change made to the Code and while the franchisor is not required to agree to the request, the Code requires the franchisor to consider the request and respond within the prescribed timeframe. This creates an avenue and an opportunity for franchisees experiencing changing personal or business circumstances to begin a conversation and seek an agreed exit from the franchise system.
Right to Good Faith Dealings
Franchisors and franchisees are required to act towards one another in good faith.
This obligation applies throughout all stages of the franchise relationship, including during negotiations, the operation of the franchise or dealing with renewals, transfers or during a dispute. This continuing obligation for both parties promotes honest, cooperative and reasonable conduct between the parties.
Dispute Resolution Rights
If a disagreement arises, the Code provides access to dispute resolution processes.
Franchisees can initiate a dispute and seek mediation, conciliation or other recognised dispute resolution processes. These mechanisms are intended to help parties resolve issues efficiently and cost-effectively before resorting to court proceedings.
Rights on Renewal and End of Term
Franchisees are entitled to receive notice from their franchisor about whether the franchisor intends to renew or extend the franchise agreement, well in advance of any expiration deadline.
This advance notice enables franchisees to plan and make informed decisions about the future of their business and investment.
Rights When Selling or Transferring a Franchise
If you decide to sell your franchised business, the Code provides protections regarding the transfer process.
Franchisors must deal with requests to transfer a franchise in accordance with the Code and cannot unreasonably withhold consent where the agreement and applicable requirements have been satisfied.
Protections Regarding Significant Capital Expenditure and Compensation
Recent reforms to the Code have strengthened protections for franchisees in relation to significant capital expenditure, providing greater transparency around when franchisors can require franchisees to make substantial investments in their business.
The Code also includes provisions relating to compensation for early termination by a franchisor if they decide to exit the Australian market, if they reorganise or rationalise the business network in Australia or if they shift how products or services are delivered, ending the local agreement and restraint of trade clauses in certain circumstances.
Protect Your Investment Before You Commit Take Charge of Your Franchise Journey
For many people, purchasing a franchise or renewing an existing franchise agreement represents one of the largest investments they will make. While the Code provides important protections, the best protection is often obtaining independent legal advice before signing a franchise agreement or making a substantial financial commitment.
An expert franchise lawyer can explain your rights and obligations, review disclosure materials, identify potential risks, clarify ongoing costs and help you understand whether the opportunity aligns with your commercial objectives. Taking advice early can provide greater certainty, reduce the risk of future disputes and help you enter into a franchise arrangement with confidence.
If you would like to discuss your franchise arrangements or require assistance navigating your rights and obligations under the Code, contact MV Law’s Commercial team for tailored advice and support.
MV Law Canberra
Ph: (02) 6279 4444
Email: info@mvlaw.com.au