The new Franchising Code of Conduct, set out in the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (the Code), is now in effect as of 1 April 2025.  This update marks a significant update to Australia’s franchising regulatory framework, introducing enhanced protections for franchisees and new compliance obligations for franchisors.  The new Code replaces the previous Franchising Code of Conduct, which was in place since 2015, and addresses several key issues identified over the past decade.

Whether you’re entering into a new franchise agreement or overseeing an existing franchise network, it is critical to understand how the Code applies and what steps you should be taking to stay compliant.

In this blog, we outline the key changes introduced by the Code, the timelines you need to be aware of, and the practical implications for your franchise agreements and disclosure documents. If you're unsure how the Code will affect your business, our team at Sierra Legal can help you navigate the changes with confidence.

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Scope and timeline of the changes

The new protections and obligations under the Code apply to:

• franchise agreements entered into, extended, renewed, or transferred on or after 1 April 2025; and
• conduct relating to franchise agreements entered into, extended, renewed, or transferred on or after 1 April 2025. This includes the provision of disclosure documents to franchisees or prospective franchisees.

Although the new protections and obligations under the Code generally apply from 1 April 2025, certain requirements are subject to a transitional period and do not apply until 1 November 2025. See below for more details regarding when certain key changes become mandatory.

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Key changes to the Code

1.     Restraint of trade (sections 42; 67)

The new Code introduces important changes to restraint of trade provisions, effective from 1 April 2025. In certain circumstances, a franchisor is now:

• ‍prohibited from entering into a franchise agreement that includes a restraint of trade clause which applies if the franchisor does not renew or extend the agreement in response to a notice from the franchisee to do so; and‍
• restricted from relying on such a restraint of trade clause.

Unlike the previous Code, which rendered such restraint clauses ineffective in certain circumstances, the new Code prohibits their inclusion outright if the relevant clause applies in those same circumstances.  Franchisors who contravene these provisions of the new Code may face civil penalties of 600 penalty units (currently A$198,000).

2.     Compensation for early termination – general (section 43)

Franchisors are prohibited from entering into franchise agreements (excluding new vehicle dealership agreements) unless the agreements include provisions for compensating franchisees for early termination in certain circumstances. This requirement builds on the previous provisions applicable to new vehicle dealership agreements, which continue to apply under the new Code, and expands the obligation to cover other franchise agreements.

This new requirement does not apply to franchise agreements entered into before 1 November 2025. From that date onward, all franchise agreements (excluding new vehicle dealership agreements) must include the above early termination compensation provisions. Franchisors should use the transitional period between 1 April and 31 October 2025 to review and update their agreements, ensuring compliance with the Code by the deadline.

3.     Reasonable opportunity for a return on investment (section 44)

Franchisors must ensure their franchise agreements allow franchisees a reasonable opportunity to earn a return on their investment during the term of the agreement. This applies to investments that franchisors require either as part of entering into the agreement or as part of ongoing operations under it.

This obligation, similar to the rules for new vehicle dealership agreements under the previous Code, has been expanded to cover all other franchise agreements. This requirement only applies to franchise agreements entered into on or after 1 November 2025, giving franchisors time to review and update their agreements during the transitional period.

4.     Termination for serious breach (section 57)

The updated Code allows franchisors to terminate franchise agreements with 7 days' notice on specific grounds. Under these new provisions, franchisees cannot escalate the matter to alternative dispute resolution.  However, franchisors may choose to grant franchisees additional time to address the grounds for termination.

While franchisees may not access alternative dispute resolution for such terminations, they are still entitled to pursue legal action if they believe the franchisor's termination is unjust or unlawful.  This section applies to franchise agreements entered into, transferred, renewed or extended on or after 1 April 2025.

5.     Disclosure document requirements (schedule 1)

The updated Code has introduced significant changes intended to promote transparency and provide franchisees with clearer financial information. These updates include:

• ‍Franchise site or territory (item 9): Franchisors must include in their disclosure documents whether the franchisee could face competition from businesses not associated with the franchisor.
• ‍Significant capital expenditure (item 14): Franchisors must include a statement in their disclosure documents specifying whether franchisees will be required to undertake significant capital expenditure during the term of the franchise agreement. If such expenditure is required, the disclosure document must outline the rationale, amount, timing, nature, anticipated outcomes, benefits, and expected risks associated with the expenditure.
• ‍Specific-purpose funds (item 15): The updated Code consolidates marketing and cooperative funds under the old Code into a single concept called specific-purpose funds. Disclosure documents must now provide detailed information about these funds, including how they are managed and utilised.

Franchisors are not required to update a disclosure document given to a prospective franchisee before 1 April 2025, even if the franchise agreement is not entered into until on or after that date. The obligation to update the disclosure document in these circumstances is deferred until 1 November 2025.

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Next steps

To meet the requirements of the new Code, franchisors should take the following actions:

• ‍Review and revise franchise agreements: Ensure agreements entered into, extended, renewed, or transferred from 1 April 2025 comply with the updated requirements, particularly regarding prohibited terms and compensation provisions.
• ‍Prepare updated disclosure documents: If the transitional period applies to a change, begin updating disclosure documents well in advance of the 1 November 2025 deadline to include all required details, such as significant capital expenditures and specific-purpose fund information.
• ‍Seek advice: Engage experienced legal professionals to navigate complex compliance requirements and provide tailored guidance to ensure that franchisors and franchisees understand their rights and obligations under the updated Code.
• ‍Monitor key dates: Ensure all updates are implemented on time to avoid civil penalties and other risks associated with non-compliance.

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Conclusion

The new Franchising Code of Conduct marks a significant milestone in the evolution of franchising regulation in Australia. By addressing key issues such as transparency, fairness, and accountability, these reforms aim to foster more equitable franchising relationships. For franchisors, understanding the application of the changes and proactively implementing compliance measures will be critical to navigating this new regulatory landscape successfully.

If you require further guidance, contact the team at Sierra Legal today.

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