Understanding the Franchising Code of Conduct: A Step-by-Step Legal Guide for Franchisors and Franchisees

Navigating the world of franchising in Australia requires more than just a great business idea — it demands compliance with strict legal obligations. The Franchising Code of Conduct, a mandatory industry code regulated by the Australian Competition and Consumer Commission (ACCC), governs the relationship between franchisors and franchisees.

Whether you’re starting a franchise or managing an existing network, understanding your obligations under the Code is crucial to avoid legal risks and maintain strong business relationships.

At MCB Lawyers, we assist both franchisors and franchisees across NSW with franchise agreements, compliance advice, and dispute resolution.

What Is the Franchising Code of Conduct?

The Franchising Code of Conduct is a legally enforceable set of rules under the Competition and Consumer Act 2010 (Cth). It applies to all franchise systems in Australia and aims to promote fair conduct and transparency between parties.

🔗 Learn more from the ACCC – Franchising Code

Step-by-Step Guide to Code Compliance

1. Disclosure Obligations

Franchisors must provide a Disclosure Document at least 14 days before a franchise agreement is signed or a non-refundable payment is made. This document outlines key business risks, costs, and terms.

The franchisor must also supply:

• The franchise agreement
• The Franchising Code
• A Key Facts Sheet (updated annually)

🔗 Download the Key Facts Sheet – ACCC

2. Cooling-Off Period

New franchisees have a 14-day cooling-off period after signing the agreement, during which they can terminate without penalty. If a payment was made, the franchisor must refund it within 14 days (less reasonable expenses).

3. Marketing Fund Requirements

If a marketing fund exists, franchisors must:

• Keep the fund in a separate bank account
• Use funds only for legitimate marketing expenses
• Provide an annual financial statement and audit (unless 75% of franchisees agree to waive the audit)

4. Good Faith Obligations

Both franchisors and franchisees are legally required to act in good faith throughout their business relationship. This includes:

• Being honest and cooperative
• Considering the interests of the other party
• Avoiding conduct that undermines the agreement

Failure to act in good faith can result in penalties and reputational damage.

5. Dispute Resolution

The Code outlines a formal process for resolving disputes. If a dispute arises:

• A party must provide a Notice of Dispute
• Both parties must try to resolve the matter within 21 days
• If unresolved, the matter may be referred to mediation or arbitration

🔗 Franchise Dispute Resolution Options – Franchise Council of Australia

6. Termination Rights

Franchisees may be able to terminate the agreement in limited circumstances, such as during the cooling-off period or if the franchisor breaches the agreement.

Franchisors may terminate without notice in serious situations, including fraud, insolvency, or public safety concerns.

Legal advice should always be sought before termination to avoid breaching the Code.

Penalties for Non-Compliance

Breaches of the Code can result in:

• Infringement notices and civil penalties issued by the ACCC
• Compensation orders
• Court-enforceable undertakings
• Damage to your business reputation and franchise relationships

Related Pages

• Commercial & Corporate Law
• Contract Review Services
• Dispute Resolution