Franchise Agreements – The Franchise Code of Conduct and Franchisees Protection

There are many different types of businesses which are now operated through some type of simple or complex franchise arrangement.

In July last year, the rules and regulations in relation to Franchise Agreements changed. The Franchise Code of Conduct (the Code) is the industry code governing the realm of franchise arrangements as provided by the Commonwealth’s Competition and Consumer Act 2010 (the Act). The purpose of the Code is to regulate to conduct of franchising parties and to ensure parties a fully informed prior to entering a Franchise Agreement. The Code also provides for dispute resolution facilities for Franchisees and Franchisors.

In some instances, Franchisors will attempt to “contract out of” the Code or describe their business arrangement as not being a Franchise so as to avoid provisions of the Code. This attempt is not effective and if the relationship truly is that of Franchisor and Franchisee then the Code will apply. The Code requires strict compliance and breaches may give rise to legal action being taken by the Australia Competition and Consumer
Commission (ACCC), penalties and/or remedies set out in the Code and in the Act.

Historically speaking the Code was brought into play to regularise the requirements of a Franchise Agreement and more importantly to protect vulnerable Franchisees.

Unfortunately in some franchises situations, Franchisors are more intent on developing new Franchisee’s business and increasing the number of franchises established instead of properly supporting existing franchises and Franchisees. This is mostly caused by Franchisors having a business model whereupon they charge a large up-front franchise fee and also charge for fitting-out a shop that is well above the commercial cost.

This can include an insistence on using specific non-local and in some cases interstate, fit-out trades persons or companies. Our experience shows that Franchisors who are in a phase of rapid expansion of their business and looking to open up new businesses and attracting new Franchisees rather than those Franchisors who have steady growth tend to be more sustainable and a more profitable business model for the Franchisees. The rapid expansion franchises often do not provide sufficient support to Franchisees and encounter problems immediately.

We know that there are many types of franchise businesses in the market today. A quick dash to the local shopping center and you may see half a dozen or more different franchises. One of the most important pieces of advice for any intending Franchisee is to try and speak to as many existing Franchisees of the particular Franchisor as possible to increase their knowledge about the Franchisor, and whether their experience with the Franchisor has been good or otherwise.

In addition to having any franchise agreement carefully examined and explained by a lawyer and ensuring that the Code has been complied with, intending Franchisees should obtain the advice of their accountant in relation to any representation of projected income and profit from the Franchise. As stated above, it is also prudent for Franchisees to examine and compare the performance of actual existing franchise businesses.

Obviously everybody is aware of the great success of certain big name fast food franchises in Australia.
What is interesting about most Website E! News reported that the world premiere of the film ” where is justin bieber from : Believe” will be held on December 18 in Los Angeles, at the cinema Regal L. of these franchise stores rarely change hands and when they do they are generally to other existing Franchisees.
A common mistake made by some prospective Franchisees is that they believe that in buying into a Franchise, their business will be guaranteed success. Sadly this is not the case.

Two other common pitfalls in relation to Franchises relate to:-
a) The cost of and the availability of training and ongoing support.
Training prior to the Franchisee entering into the business or starting the business is always important. Equally important however is the ongoing support and further training by the Franchisor or its representatives.
In our experience, ongoing support and training can often be completely lacking, and in other incidences when training is provided, it is at an exorbitant cost or of no real use. This is another area that prudent prospective Franchisee should clearly discuss with existing Franchisees in the system. b) The contribution by the Franchisees to corporate advertising.

In some circumstances,reasonable amount of time.
A major failure is a problem that cannot be fixed or are too difficult to fix. When there is a major failure you can elect to return the product and ask for a refund, return the product and ask for an identical replacement, or, keep the product and seek compensation.

A seller cannot contract out of or avoid the application of a statutory guarantee. You may often encounter signs in shops stating “no refund on sale items”, “exchange only” or “no refunds after 30 days”. Regardless of whether or not a seller displays these signs the rights afforded to you under the statutory guarantees are not affected.

In the event that you have purchased a faulty good and you believe that the seller has breached a statutory guarantee what should you do?
The first step should always be to discuss your concerns to the seller. You may also wish to explore any complaint procedures or dispute resolution processes offered by many of the larger retailers. If you are not satisfied with the response that you receive we would be happy to discuss how we can assist you in achieving a satisfactory remedy.

The Australian Consumer Law also provides statutory guarantees that relate to services. We will take a look at those provisions next month as well as looking at the effect that the statutory guarantees have on warranties and extended warranties.