The Franchising Code of Conduct (Franchising Code) is a mandatory code established under the Competition and Consumer Act (Cth) 2010. It governs the behaviour of franchising participants, aiming to address the power imbalance between Franchisors and both prospective and existing Franchisees. By setting standards for conduct and improving franchising practices, particularly through enhanced information disclosure and clearer Franchise Agreement requirements – the code seeks to reduce disputes within the sector. The Australian Competition and Consumer Commission (ACCC) is responsible for ensuring compliance with and enforcing the provisions of the Franchising Code. A new Franchising Code came into effect in April 2025, with mandatory compliance required from 1 November 2025 following a transition period.
From 1 November 2025, all Franchise Agreements must include provisions requiring Franchisors to compensate Franchisees if the agreement is terminated early due to:
- Exiting the Australian market
- Restructuring or downsizing its Australian operations
- Changing its distribution model within Australia
The Franchise Agreement must detail the method for calculating compensation, taking into account the following factors:
- Lost earnings: The income the Franchisee would have made if the Franchise Agreement had continued as planned, including both direct sales and other revenue streams.
- Unrecovered capital costs: Any major purchases the Franchisor required (e.g. a $20,000 machine expected to last 10 years, but the agreement ends after 3 years).
- Goodwill loss: The value of the business’s reputation and customer base that the Franchisee can no longer sell or transfer.
- Closure costs: Expenses involved in shutting down the business, such as lease termination, restoring the premises, staff payouts, and accounting fees.
If the Franchise Agreement is terminated for one of the specified reasons, the Franchisor is obligated to either accept the return of the items or provide compensation to the Franchisee for any remaining stock that was required under the Franchise Agreement or outlined in the operations manual, along with essential branded equipment or merchandise specified by the Franchisor that cannot be repurposed for use in a similar business, must be accounted for.
Franchise Agreements must now provide Franchisees with a genuine opportunity to achieve a return on their investment. Although Franchisors are not required to guarantee profits, they must provide realistic financial forecasts and assumptions that reflect the business’s potential performance. Additionally, the term of the Franchise Agreement should be carefully aligned with the time required for Franchisees to earn a reasonable return on their investment. The Disclosure Document must also include sufficient detail to enable prospective Franchisees to thoroughly assess the viability of the franchise opportunity. This obligation, once confined to vehicle dealerships, now extends to all franchise sectors.
Franchisors are now required to comply with more rigorous governance and reporting obligations for any fund to which Franchisees contribute for a collective purpose – not limited to marketing or cooperative funds, including:
- Preparing financial statements
- Conducting audits or reviews
- Giving franchisees access to fund management details
- Clearly explaining the fund’s purpose, contribution rules, and decision-making processes in the disclosure document
Funds must be clearly structured and fully transparent, with appropriate oversight mechanisms in place to ensure accountability.
When a Franchisee is required to make a significant investment such as a store refurbishment or equipment upgrade, the Franchisor must clearly disclose the nature, timing, and cost of the expenditure. It is also important to explain the expected benefits and potential risks associated with the investment. Furthermore, the Franchisor should engage in a thorough discussion with the Franchisee about the expenditure prior to signing the agreement, ensuring transparency and mutual understanding. This helps ensure that Franchisees are aware of the financial implications and can make well-informed decisions.
A Franchisee may waive their cooling-off rights under the following conditions:
- They are renewing or extending a Franchise Agreement that is substantially the same as the previous one.
- The business being operated remains essentially unchanged.
- They are an existing Franchisee within the same franchise network and are purchasing another franchised business.
In such instances, the Franchisee must provide written notice to the Franchisor confirming their decision to waive the cooling-off period. This amendment aims to streamline the renewal process and minimise delays for experienced Franchisees who are already familiar with the business model.
The Code now clearly states that the Franchisor is not permitted to sign the Franchise Agreement during the 14-day consideration period. While the Franchisee may choose to sign and return the agreement within this timeframe, the Franchisor must wait until the full 14 days have passed before signing. This ensures that Franchisees have adequate time to review the agreement and seek advice before making a commitment. This clarification eliminates ambiguity around the term ‘entering into’ the Franchise Agreement and ensures Franchisees have sufficient time to thoroughly review all relevant information before finalisation.
Franchisors are required to review and revise their agreements and disclosure documents to ensure alignment with the updated code. Likewise, Franchisees should take the time to understand the new provisions, particularly those outlining their rights and the responsibilities of Franchisors under the revised regulations.
The Francom Effect
At Francom, we are dedicated to maintaining full compliance across our franchising operations. Our legal and compliance teams proactively review and update Franchise Agreements to align with all new regulations and amendments to the Franchising Code of Conduct. With the recent reforms introduced in 2025, including enhanced disclosure requirements, mandatory compensation clauses for early termination, and clearer rules around capital expenditure and dispute resolution, Francom ensures every Franchisee is well-informed and protected.
We place a high value on transparency, fairness, and ethical business practices. Our commitment to honest communication and strong relationships with Franchisees and customers alike is central to our operations. As part of our ongoing efforts, we also ensure that all Franchise Agreements provide a reasonable opportunity for return on investment and comply with the new rules around restraint of trade and specific purpose funds.
Francom remains a trusted partner in franchising, upholding the highest standards of integrity and accountability in every aspect of our business.
References
Australian Competition and Consumer Commission. Franchising Code of Conduct. (2025). https://www.accc.gov.au/business/industry-codes/franchising-code-of-conduct