ACCC’s Franchising Code of Conduct set to change with introduction of harsher penalties

The ACCC will update the Franchising Code of Conduct, introducing stricter penalties for breaches from on 1 January 2015.

Based on the exposure draft of the new Code, the ACCC will be able to issue infringement notices of up to $8,500 and seek penalties up to $51,000 in the Federal Court for contraventions of the Code.

The ACCC has been administering the Code for 16 years and believes the absence of financial penalties for a breach of the Code has “been a clear gap” in the policy. Currently, the watchdog is able to issue infringement notices for certain breaches of the Australian Consumer Law.

ACCC Deputy Chair Dr Michael Schaper spoke about the proposed changes today, saying the policy takes a common sense approach by the ACCC to the use of its regulatory powers.

“The changes are likely to go unnoticed by franchisors and franchisees who do the right thing. However, the new powers are likely to play an important role in achieving compliance with the Code,” Schaper said.

“Infringement notices will allow us to move swiftly to deal with what we believe to be breaches of the Code, while the court penalties will provide more teeth in deterring rogue operators.”

Schaper 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.”

Schaper explained further what the ‘good faith’ obligation would mean for franchisors and franchisees.

“Fundamentally, good faith will require both parties to a franchise agreement to remain loyal to the contract they have entered into.

“Acting for an ulterior purpose, or in a way that undermines or denies the other party the benefits of the contract are examples of conduct that may qualify as bad faith.

“While good faith requires you to have regard to the rights and interests of the other party, it does not prevent you from acting in your own legitimate commercial interests.”

It is important franchisors, franchisees and prospective franchisees have clear understanding of the revised Code. The ACCC will hold a free webinar on 9 December to help the sector prepare for the changes.

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