10 Things Every Franchisor Should Know – Part 2

By Naomi Schulte • In Commercial LawComments Off on 10 Things Every Franchisor Should Know – Part 2

Further to Part 1 of “10 Things Every Franchisor Should Know”, franchisors should also be aware of the following 5 points in complying with the Franchising Code of Conduct:

6. RECORD KEEPING

  • A Franchisor may be required to generate or publish certain documents such as disclosure documents and marketing fund statements in order to provide evidence of compliance with the Code.
  • If the Code requires a franchisee to provide the franchisor with something in writing for example, confirmation of receipt of disclosure documents or a professional advice statement, the franchisor must keep a copy of it for at least 6 years.
  • If a Franchisor makes any statements or claims in the disclosure document which rely on another document, a franchisor must keep that document for at least 6 years. For example, if projected earnings are provided, copies of the documents that support those figures must be retained.

7. TERMINATION AND TRANSFERS

7.1 – Termination

A franchisor must comply with the following requirements if they wish to terminate a franchise agreement due to a breach by the franchisee:

  • The franchisor must provide the franchisee with written notice of its intention to terminate the agreement because of the breach;
  • The notice must set out how the franchisee can remedy the breach and allow the franchisee a reasonable time to remedy the breach (this does not have to be more than 30 days); and
  • If the franchisee remedies the breach in the allotted time frame, the agreement cannot be terminated because of that breach.
  • If a franchisor has a right to terminate an agreement before it expires, even if the franchisee has not breached the agreement or consented to the termination, the franchisor must give the franchisee reasonable written notice of the termination and the reasons for it.

7.2 – Transfer of Agreement

  • A franchisee must obtain a franchisor’s consent to a transfer. A request for consent must be in writing and must include information that a franchisor would reasonably require to make an informed decision.
  • A franchisor must advise in writing whether they consent or not and whether such consent is subject to any conditions. A franchisor’s consent cannot be unreasonably withheld.
  • A franchisor may reasonably revoke consent to the transfer within 14 days of granting it.
  • A franchisor will be taken to have consented to the transfer if no objection is provided within 42 days of receiving the franchisee’s written request for consent.

8. DISPUTES

  • If a dispute arises, either party may take action to resolve it by commencing the procedure set out in the franchise agreement or the procedure under the Code. Regardless of what procedure is adopted, the parties must try to resolve the dispute in good faith.
  • A party will be taken to be trying to resolve the dispute by attending and participating in meetings at reasonable time, making intentions clear at the beginning of the process, as to what they wish to be achieved, complying with any confidentiality obligations and acting in good faith throughout the process.

9. PENALTIES

  • A franchisors failure to comply with the Code is also a breach of the Act, and enforcement action can be taken against the franchisor or its business.
  • The Act provides for financial penalties, sanctions for non-compliance and court orders such as injunctions to stop conduct or to require action be taken, compensation and damages and disqualification orders to prevent directors from managing corporations for a period of time.
  • The Act allows affected parties (e.g. franchisees) to take legal action for a breach of the Code.
  • In certain circumstances, liability can extend to directors, secretaries, officers or board members of a company and employees of a company.
  • A person may be liable if they attempt to breach the Code, assist, or induce, another party to breach the Code, are a party to the breach of the Code or are knowingly concerned with a breach of the Code.

Franchisors should act now to review and update business processes, franchise agreements and disclosure documents to ensure compliance with the Code.   For further information and assistance, please contact Bell Legal Group on (07) 5597 3366 or email nschulte@belllegal.com.au

Comments are closed.