Expanding a franchise into a new country is an exciting opportunity for international franchisors to tap into fresh markets and foster global growth. Australia has long embraced franchising as a means of business expansion and development, however the industry is tightly regulated, making it a landscape difficult to navigate for foreign companies and brands. Success requires a thorough understanding of Australia’s unique business environment and legal framework.
So, what are the key considerations international franchisors need to know about before tapping into the Australian franchising market?
Compliance with Franchising laws
Franchising in Australia is governed by the Franchising Code of Conduct (Code), a mandatory industry code which regulates the relationship between franchisors and franchisees in Australia. The Code sets out specific requirements that franchisors must adhere to in order to maintain transparency, fairness, and ethical practices within the franchising sector.
A copy of the Code is available here, however key obligations and responsibilities of franchisors set out in the Code include:
- Disclosure Requirements
Franchisors must provide prospective franchisees with a disclosure document at least 14 days before a franchise agreement is signed or any payment is received from a franchisee. The disclosure document contains important information about the franchisor, the franchise system, and the terms and conditions of the franchise agreement.
Together with the disclosure document, franchisors must provide a key facts sheet which highlights the most important information in the disclosure document. When read together with the disclosure document, the key facts and helps franchisees navigate and understand the disclosure document.
- Good Faith Obligations
The Code obliges all parties to a franchise agreement to act in good faith towards one another during the negotiation and performance of the franchise agreement.
“Good faith” is not defined in the Code, however for franchisors generally means they must act honestly and fairly, not engage in unconscionable conduct, and communicate openly with franchisees. This obligation also applies to franchisors providing reasonable assistance and support to franchisees to help them establish and operate their businesses successfully.
- Franchise Disclosure Register
Franchisors must register and create a franchise profile on the Franchise Disclosure Register. The Franchise Disclosure Register was introduced in November 2022 and gives prospective franchisees access to information that is important to know when making business decisions.
Information provided on the franchise profile includes:
- Franchisor name and Australian Business Number (ABN)
- Contact details for the franchisor
- Australia and New Zealand Industry Standard Industrial Classification (ANZSIC) division and subdivision codes for the industry in which the franchise business operates
- Details of supply of goods and services by franchisees
- Details of fees, costs and expenses payable by a franchisee
- Duration of the franchise agreement
You can access the Franchise Disclosure Register here to search and view franchise profiles of current Australian Franchisors.
Compliance with Employment and Workplace laws
As franchisors have a responsibility to support their franchisees, understanding Australian workforce and employment law is paramount. This includes health and safety requirements, and minimum employment standards, such fair dismissal, anti-discrimination laws, minimum wages and pay rates that apply to various occupations and sectors, working hours, leave entitlements and termination procedures.
Franchisors may also be held liable for the actions of their franchisees, including employment-related issues. If a franchisee contravenes employment laws, the franchisor could face legal consequences, such as claims for unpaid wages, unfair dismissal, or workplace discrimination. Adapting to and understanding employment laws helps minimize risks of franchisor liability.
Foreign Ownership Restrictions
Australia has regulations that restrict foreign ownership in certain sectors, including retail and real estate. International franchisors need to know if their proposed investment in Australia falls under these restrictions. Foreign Investment Review Board (FIRB) approval is required for foreign individuals or entities looking to invest in a business or acquire real estate assets in Australia.
As international franchisors may also consider acquiring existing franchises or merging with local businesses in Australia, these kind of transactions could trigger FIRB scrutiny, especially if they involve significant assets, control, or result in foreign ownership. Understanding the FIRB process and foreign investment regulations is crucial to ensure a smooth acquisition process.
Failing to comply with FIRB requirements could result in financial penalties, forced divestment or other legal consequences.
At Legalite, we work with international franchisors and licensed brands who are expanding into Australia and Australian brands expanding to new shores. This includes foreign investors and developers who are looking to purchase or lease real estate in Australia.
If you have global mastery in your sights, Legalite has the specialist expertise to ensure your global expansion is a triumph.
If you have any questions about launching your franchise in Australia, get in touch with us!