The Australian Competition and Consumer Commission (ACCC) has shed some light on this uncertainty through its September 2023 submission to the ongoing review of the Code by the Australian government. In this submission, the ACCC pinpointed several issues affecting the $170 billion franchising industry in Australia.

They proposed that introducing a franchisor licensing regime could address these concerns and bring about positive changes. But what would such a regime look like, and how would it change the way franchise law is practised in Australia?

What would a franchisor licensing regime look like?

While the precise ins and outs of such a regime are unknown, the ACCC provided some insights into what a franchisor licensing regime could entail in its submission. Specifically:

1. A licence would be required to grant franchises. Presumably, any franchise granted when the franchisor did not have the required licence could be deemed void.
2. Franchisors would face a set of conditions when establishing and maintaining their franchise networks to obtain and retain the relevant licence. These requirements might include engaging in meaningful negotiations of franchise agreement terms, refraining from exercising rights detrimental to the franchisee, and only granting franchises to individuals meeting specific criteria (such as possessing the necessary skills, knowledge, and experience for successful franchise operation).
3. If a condition was not satisfied, the licence would either not be granted for new franchisors or could be suspended for existing networks until remedial action is taken, as directed by an appropriate regulator.
4. The dispute resolution process for franchise parties would transform with the introduction of accessible binding dispute resolution. The submission highlighted that, in case of disputes, franchisees desire a swift and affordable resolution to move forward and focus on their businesses. The submission emphasised that litigation is often slow and expensive, proposing the introduction of a determinative scheme for binding dispute resolution. Examples cited included the Telecommunications Industry Ombudsman and the Australian Financial Complaints Authority, both already operating as determinative schemes in Australia.

Professionals in the franchising sector must vigilantly monitor the legal landscape throughout 2024. Keeping clients informed and implementing processes and plans to adapt to the evolving laws are essential. If a licensing regime is implemented, the profession will need to be prepared and responsive.

Specifically:

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1. Update of franchise documentation: All franchise documentation will very likely require updates. Currently, franchisors are obligated to adhere to the Code and issue a disclosure document and key facts sheet in the prescribed form. With the Code set to expire, it follows that these documents will need another update, assuming they remain part of the franchising law at all.
2. Licences acquisition and maintenance: Franchisor clients will need guidance through the licensing process, and advice on adapting their network’s processes to ensure ongoing compliance with the licensing regime.
3. Dispute resolution skills: Examination of the binding dispute resolution processes in determinative schemes, as cited by the ACCC, reveals a straightforward process of completing forms and obtaining responses. To utilise such a process, disputes must be streamlined, and tight timelines adhered to. Lawyers will likely need to enhance their skills in summarising legal positions, efficiently providing relevant evidence, and quantifying damages in a quick and digestible manner.
4. Emphasis on compliance: Promoting compliance with the regime will be crucial to successfully advising franchisor clients. Currently, a franchisor can breach its existing 10 franchise agreements and still proceed to grant the 11th. The disclosure document, in its current state, only requires the disclosure of litigation or alternative dispute resolution that has occurred or is pending, not of every complaint or grievance raised. However, with a breach of the licensing regime likely hindering a franchisor from granting new franchises until remedial action is taken, compliance becomes paramount. The legal profession will need to assist through compliance checks and encouraging franchisor clients to audit their own ongoing compliance.

The answer to this million- (or, more correctly, billion!) dollar question is largely unknown, but monitoring the situation is key. Keeping an eye out for announcements and media releases by the ACCC, the Minister for Small Business (to whom the current review is to be submitted), and the Franchise Council of Australia will enable the profession to prepare for change.

Emma Jervis is the founder of Magnolia Legal.