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Updated franchise industry code of conduct comes into effect today

Written on the 1 January 2015

By Naomi Woodley

Operators in the $144 billion franchise sector in Australia risk new, heavy fines if they breach an updated code of conduct, which comes into force today.

Small Business Minister Bruce Billson said Australians wanting to buy into a franchise would now have clearer information about the financial and legal risks, and expectations.

"There had been some concern about malicious conduct where franchise systems were pushing around franchisees, the mums and dads investing in franchise businesses, and then seeing the same business put up for sale again," he said.

"Where disputes emerged and there wasn't a genuine commitment to pursue mediation, and some examples where franchisees paying marketing funds into an account then learned those funds were being used to pursue legal action against other franchisees."

The new code of conduct focuses on greater information sharing and transparency, and both sides of a franchise arrangement will have an enforceable obligation to act in good faith.

Mr Billson likened the business arrangement to "a commercial marriage".

Big penalties for unscrupulous franchise operators

"It's all about doing the right thing by your business partner, keeping that adult-to-adult, mutually supportive, shared purpose relationship," he said.

"That's what good franchising is all about; that's why it's so popular."

The Australian Competition and Consumer Commission (ACCC) will oversee a new penalty regime as part of the new code of conduct, including infringement notices of up to $8,500 for companies that breach the code and $1,700 for individuals.

The ACCC would also be able to take more substantial matters to court to pursue penalties of up to $51,000.

The code of conduct was a Coalition election promise, but it was only finalised in November.

The General Manager of the Franchise Council of Australia (FCA), Kym De Britt, said while it was a significant set of changes, it was welcome.

"It's all aimed at making it easier and simpler, and more cost efficient, but (for) people looking at going into franchising there's risks with everything," Mr De Britt said.

"So when someone is looking to go into a franchise they really need to do their homework beforehand.

"We highly recommend they get independent legal advice and independent financial advice and that's part of what was introduced into the new code."

In recent years, there have been high profile problems with fast food franchises such as Krispy Kreme and more recently Pie Face, which announced a deal to keep operating yesterday.

But Mr De Britt said the new code was not just a response to those cases.

"The situations like Pie Face are not nice, but that's not representative," he said.

"It (the code) is more to keep it up to date and include changes in how businesses operate nowadays."

The FCA said the sector experienced 9 per cent growth over the past two years, but it reflected the broader economy's challenges, with franchises in the retail sector experiencing flat conditions.

With unemployment rising, a significant drop in commodity prices affecting the federal budget, and general economic growth slowing, the Small Business Minister was hoping the sector could drive a turnaround in economic conditions.

"Interest rates are quite supportive," Mr Billson said.

"You look at other impacts, the currency's been quite helpful in other places, this is a really useful time for people to be involved in small business and family enterprises, and that's why I'm optimistic, realistic but optimistic, about the year ahead."

The holiday season has once again been accompanied by calls from some in the hospitality and retail sector for penalty rates to be changed.

The Government said businesses could apply for relief and changes through the Fair Work Commission, but it was up to them to make the case for change.

Mr Billson encouraging them to submit their views to the Productivity Commission's review of Australia's industrial relations system.

"That's another crucial area where small businesses, in my view, should be front and centre having their voice loudly heard influencing that policy debate," he said.

That review is due to be handed to the Government in November.

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