It’s official, the changes to Franchising Code of Conduct are coming, and will be effective from 1 April 2025. The updates aim to address long-standing challenges, enhance transparency, and promote fairness in the franchising sector, which supports over 2.6 million small businesses. Many of the changes will impact franchisors’ operational processes, but some will require changes to franchise agreements and disclosure documents moving forward.
Here’s a breakdown of the key changes and their implications:
- Reasonable Opportunity for Return on Investment
The revised Code mandates that all franchise agreements provide franchisees with a “reasonable opportunity” to recover their initial investment during the agreement term. Previously limited to motor vehicle dealerships, this now applies to all franchises. Franchisors failing to meet this requirement may face penalties of 600 penalty units, although they are not obligated to guarantee profits or shield franchisees from inherent business risks. As most franchise agreements are for terms of 5 or more years, this shouldn’t be problematic for franchisors. If your agreements are shorter than this, then you should ensure that the investment required is commensurate with the term, and provides a reasonable opportunity for return on investment.
- Compensation for Early Termination
If a franchisor terminates a franchise agreement early—due to exiting the market, changing distribution models, or closing the franchise network—they must compensate franchisees for losses. Compensation will cover items like unsellable stock, specialty equipment, lost profits, and winding-up costs.  The franchise agreement must also have specific reference to how compensation is to be determined in relation to loss of profit from direct and indirect revenue, unamortised capital expenditure requested by the franchisor, loss of opportunity in selling established goodwill and costs of winding up the franchised business. This provision strengthens franchisee protections against abrupt closures, and can have significant consequences for franchisors.
- Updated Disclosure and Documentation Rules
The Key Facts Sheet, previously a required document, will be removed with the intention of improving readability and removing repeated information.
- Fair Work Act Compliance and Transparency
Previously contraventions under the Fair Work Act were not expressly included in disclosure requirements, however under the new changes, franchisors must disclose any public agency proceedings against them under the Fair Work Act in the franchisor’s disclosure document. This measure enhances accountability and ensures franchisees are aware of workplace law compliance issues.
- Changes to Marketing Funds
The new term “specific purpose fund” clarifies obligations for pooled payments made by franchisees for specific uses, like marketing or technology upgrades. Section 31 requires fund administrators to prepare and share detailed financial statements annually, including income and expense breakdowns, ensuring transparency. Franchisors must also disclose whether these funds directly benefit contributing franchisees, promoting accountability and trust.
These updates eliminate ambiguity from the previous code, holding franchisors to stricter financial reporting standards while ensuring franchisees know how their contributions are used.
- Record-Keeping and Penalties
Section 37 enhances record-keeping requirements, mandating franchisors to retain key documents, including those from franchisees, disclosure document support materials, and Code-related communications, for at least six years. These documents can be stored electronically or physically and must be accessible for ACCC audits under section 51ADD of the Act. Civil penalties of up to 600 penalty units ensure compliance, bolstering the ACCC’s regulatory capabilities without adding significant administrative burdens.
- Streamlining for Existing Franchisees
Existing franchisees renewing or transferring agreements can opt out of receiving certain disclosure documents and the 14-day cooling-off period. While this simplifies processes, it requires written consent and applies only to franchisees with prior agreements for similar businesses.
- Australian Small Business Ombudsman (ASBFEO) Powers
The ASBFEO will gain authority to publicise franchisors who refuse or withdraw from dispute resolution processes. This “name-and-shame” measure aims to ensure franchisors engage constructively in conflict resolution.
Why These Changes Matter
The new code addresses persistent power imbalances between franchisors and franchisees while simplifying compliance. By ensuring fairer terms, clearer disclosure processes, and better protections against unforeseen risks, the updates aim to foster trust and sustainability within the franchising ecosystem.
For businesses and individuals in the franchising space, understanding these changes is crucial to adapting and thriving under the revised regulations.
Under the new Franchising Code of Conduct, certain obligations come into effect later to ease the transition for franchisors. For example, the requirement to update existing disclosure documents annually under Section 21 will not apply until 1 November 2025, though franchisors may voluntarily update them earlier. Similarly, obligations related to specific purpose funds, which broaden the scope of financial transparency beyond traditional marketing funds, also take effect from this date. Additionally, disclosure documents created before 1 November 2025 are not required to include details about significant capital expenditure, giving franchisors more time to adapt to the new requirements. These transitional provisions are designed to ensure franchisors can effectively align their practices with the updated Code.
If you have any questions about the changes, contact us at [email protected]
For Legalite clients, we will be in touch in early 2025 to update any necessary changes to your documents.