More than $8.6 million in administration costs will be eliminated each year as a result of the federal government’s updated Franchising Code of Conduct, says Small Business Minister Bruce Billson.
Speaking to SmartCompany this morning, Billson says the details of the updated code are now available to all franchisees and franchisors, ahead of it coming into effect on January 1.
Billson says both franchisees and franchisors will benefit from the code’s greater certainty and predictability, as well as the savings in administrative costs it will usher in.
“The code introduces a new statutory obligation for franchisees and franchisors to act in good faith in dealings with each other, as well as streamlined disclosure arrangements for potential franchisees and clarity around how marketing funds can be used and administered,” Billson says.
The code also grants “more targeted” enforcement tools to the Australian Competition and Consumer Commission, which Billson says will allow the competition watchdog to apply civil penalties for the significant breaches of the code.
Billson is also enthusiastic about provisions which will require franchisors to provide an “early information statement” to prospective franchisees, as well as updates to the application of restraint of trade clauses at the end of a franchise relationship.
“At the end of the day a franchise is still a business undertaking so there are some risks, but there are also rewards,” he says.
Billson hopes the strengthened code will help franchise businesses deal swiftly and decisively with disputes or minor breaches of the code, and in turn, help to avoid lengthy and damaging disputes between franchisees and franchisors.
“The previous arrangement gave guidance and encouragement to parties on what was expected of them, but if there was a deviation from these standards of conduct, there were very limited tools available,” Billson says.
Billson says under the previous version of the code, enforcement actions were only possible in cases where a breach was “so substantial to warrant allegations of unconscionable behaviour”.
But under the updated guidelines, potential breaches will be able to be “nip[ped] in the bud quickly” with a “right-sized response”, says Billson.
“If there is a breach, swift action can be taken, there might be a fine and agreement between the parties … then they can get back to business quickly.”
Billson recommends franchisees and franchisors familiarise themselves with the new code, although he says all franchises with existing disclosure statements in place on January 1 will be covered until the end of October 2015.