Franchising Wrap – June 2024

27 June 2024

It is hard to believe that we are nearly through June already! It feels like the year has just begun, yet here we are preparing for the end of another financial year.

There have been a number of key developments in franchising so far this year. The biggest franchising news (so far!) is no doubt the Federal Government’s response to the Franchising Code Review undertaken by Dr Michael Schaper. As anticipated, the Government has agreed, or agreed in principle, to all of Dr Schaper’s 23 recommendations from the Review. This is discussed in more detail in our article below.

We have also recently seen a decision in the 85 Degrees Coffee case, with the Federal Court imposing hefty fines of over $1.4 million on the franchisor in relation to certain workplace relations breaches by its franchisees. This case, being one of the first to consider the legal changes that made it possible for a franchisor to be liable for breaches of workplace laws by its franchisees, is a timely reminder for franchisors about their potential liability for such breaches and the need to ensure that they, as franchisors, have taken ‘reasonable steps’ to prevent such breaches.

More broadly, franchisors should continue to keep on eye on unfair contract terms (UCT) and, in particular, how the revised regime will apply in the world of franchising. In this regard, many franchise networks found themselves revisiting their 2023 amendments following the Australian Competition and Consumer Commission (ACCC) releasing its report, ‘Unfair Contract Terms in Franchise Agreements’ in late 2023. The report, which came about following the ACCC conducting reviews of a select number of franchise agreements, highlighted a number of clauses that are particularly likely to give rise to UCT issues. The report, and action items for franchisors who have not yet considered it, are addressed in our article below.

We also briefly look at recent action taken by the Australian Securities and Investments Commission (ASIC) on a director for failing to have a director identification number (DIN). This action reiterates the importance of all directors, including directors of all franchisees and franchisors, of having a valid DIN.

Please see below links to articles about each of these issues.

We look forward to discussing these developments with you further.

HWL Ebsworth Franchising Team

Federal Government releases response to Franchising Code Review

As many people would have already read, the Federal Government has released its response to the Franchising Code Review undertaken by Dr Michael Schaper on behalf of the Government. Not surprisingly and as anticipated, the Government has agreed, or agreed in principle, to all of Dr Schaper’s 23 recommendations.

Of critical importance, the Government has agreed that all franchise agreements should provide for a reasonable opportunity to make a return on investment and provide compensation to a franchisee upon early termination of the franchise agreement.

Click here to read more.

Franchisor fined $1.44 million in relation to failure to take reasonable steps to prevent underpayments of franchisees

On 4 June 2024, the Federal Court imposed a significant fine of $1.44 million on 85 Degrees Coffee Australia Pty Ltd, a franchisor, for its role in failing to ensure compliance with the Fair Work Act 2009 (Cth) (the Act) on the part of several franchisees. The contraventions related to underpayments in breach of the relevant Awards, and failure to comply with record-keeping and payslip obligations.

The Court’s decision puts franchisors on notice of the significant potential exposure they may have for underpayments in the context of their operations under the new provisions of the Act.

Click here to read more.

Unfair contract terms: so you updated your franchise agreement for the November 2023 deadline – but have you considered the ACCC’s Report?

In July 2023, the ACCC commenced a series of compliance checks assessing the documents of 10 franchisors from a variety of industries against the requirements of the Franchising Code of Conduct (Franchising Code) and against the UCT provisions of the Australian Consumer Law.

Following those compliance checks, the ACCC released its Report in December 2023, finding that the franchise agreements were largely compliant with the Franchising Code, however, they contained a number of clauses that raised UCT concerns.

The ACCC Report identified 5 key areas of concern from a UCT perspective.

Click here to read more.

Directors on notice: have a DIN or face the consequences

ASIC has recently brought its first prosecution action against a director for failing to have a DIN.

The director was charged with one count of contravening section 1272C(1) of the Corporations Act 2001 (Cth) and is facing a maximum penalty of 60 penalty units, being $13,320.

ASIC’s recent action provides a timely reminder that directors of all corporations, including all franchisors and franchisees that are companies, need to ensure they have a valid DIN.

Click here to read more.

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us