Enforcing the Franchising Code: A Proposed Boost for Code Compliance

Monday 27 October 2014 @ 10.22 a.m. | Trade & Commerce

Based on the exposure draft of the new Franchising Code released in April 2014, the Australian Competition and Consumer Commission (ACCC) has advised that the game will change  for operators engaging in serious breaches of the Franchising Code of Conduct with proposed enforcement powers increasing the stakes on 1 January 2015.

Background to New Powers for ACCC

A new chapter of the Franchising Code of Conduct (the Code) is set to begin on 1 January 2015. For the first time, it is proposed that the ACCC will have powers to issue infringement notices of up to $8,500 and seek penalties up to $51,000 in the Federal Court for breaches of the Code.

In particular, based on the exposure draft of the new Code released in April 2014, it is likely that financial penalties and infringement notices will be available for serious breaches of the Code, including failure to:

  • act in good faith;
  • provide a disclosure document;
  • attend mediation; and
  • provide reasonable written notice of proposed termination for breach.

As part of the Franchising Review there was some trepidation about the scope of the powers and the way in which the ACCC may use them, should the government decide to introduce them, however the ACCC states that the changes are likely to go unnoticed by franchisors and franchisees who do the right thing. The new powers are likely to play an important role, however, in achieving compliance with the Code.

Background to ACCC Enforcement

The ACCC is an independent statutory body responsible for promoting competition and fair trading and their role extends to ensuring franchising industry participants comply with their obligations under theFranchising Code of Conduct.

The Code is mandatory under the Competition and Consumer Act 2010 (Cth) and the ACCC investigates alleged breaches of the Code and the Act and take enforcement action where appropriate. Since the Code was introduced in 1998, the ACCC have taken court action against almost 30 franchisors including:

  •  Coverall;
  • SensaSlim;
  • TaxSmart;
  • Electrodry; and
  • Harvey Norman Franchisees.

Priorities with the New ACCC Enforcement Powers

Dr Michael Schaper, Deputy Chair of the ACCC, said the ACCC will focus on particularly serious conduct, including breaches of the ‘key pillars’ of the revised Code:

“This is likely to include failure to act in good faith, failure to provide a disclosure document, refusal to attend mediation and unlawful termination of a franchise agreement.”

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