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What to Do If You’re in Dispute with Your Franchisor
Often clients having bought into a franchise with little upfront advice will contact us raising questions as to the ability of the franchisor to force them to buy from them or a related or specific supplier.
In general, these requirements can be contrary to the spirit of franchising code of conduct and the ACCC good faith provisions.
Simply if it is designed to stifle competition, then that will be frowned upon BUT a franchisor has every entitlement to lay out strict conditions and standards of products for the franchised business and so that is unlikely to be a breach of the competition requirements or rules as set out in the act, however, if the requirement is to only purchase from particular suppliers, then competition may be effected and the franchisor runs the risk of being liable under the act in stifling competition.
On the first of January 2015 the old franchising code was repealed and replaced with a new franchising code of conduct, and the code applies to conduct on or after the 1st of January 2015, and generally what has happened with the new code is that it has brought in an obligation of good faith, that a franchisor or a franchisee must deal in good faith with each other.
It also imposes penalties for serious breaches of the code, and obliges the franchisor to act with more transparency and communicate far clearer by that it means that appropriate disclosure must be made of other franchisees and the ability to contact other franchisees, so that a potential franchisee can complete investigations as part of their own personal due diligence investigations with other franchisees to determine the role played by the franchisor in the conduct of the franchise.
Interestingly enough the code works somewhat retrospectively to all franchises entered into after the 1st of October 1998 that have been subsequently renewed, transferred or varied in any way on or after the 1st of January 2015, notwithstanding they were not originally entered into after the 1st of January 2015.
In the event that there is dispute one of the first key requirements under the new code is that the jurisdiction in which that dispute is to be determined will be in the state in which the franchisee operates his business, as opposed to a completely different state, so that is a victory for franchisees with provisions of the code helping them in the legal determination of their disputes.
Before entering into a franchise agreement ensure you get appropriate legal advice so that we can go through the requirements of the code and how they relate to the draft agreement.
The cheapest part of any legal transaction is at the front and before you enter into the document so avail yourself for that and see us as soon as you can.
Other than the initial seven (7) day cooling off period when entering into a new franchise agreement that is not a renewal extension or transfer of an existing one during your franchise agreement then there are important obligations the franchisor has when dealing with the franchisee.
The franchisor must not do anything that restricts a franchisee’s ability to communicate with and/or associate with other franchisees or prospective franchisees or the freedom to form an association with them, and so you can request in writing a disclosure document once every twelve (12) months, and generally the franchisor is required to provide that within fourteen (14) days of request.
As well as the annual disclosure obligations the franchisor has an obligation at any time to disclose to you a materially relevant fact that could be court proceedings or judgments that have been brought or entered against the franchisor, or change in ownership of any of the intellectual property pertaining to the franchise.
The franchisor is required to tell you about that within fourteen (14) days.
Generally the code requires internal complaint handling processes to be set out in the relevant agreement. The code actually provides for this and so you should marry off your agreement as against the codes requirements.
The ongoing obligation of good faith remains and so therefore you have to resolve it pursuant to the code or resolve it pursuant to the franchise agreement and at all times you must act in good faith. The code sets out minimum standards for the complaint handling and therefore this must be reiterated in the franchise agreement and of course the franchise agreement may go to further lengths.
The internal handling of a complaint is the first step in that good faith process for both parties to sit down and try to resolve it between themselves and then if not so, usually an allowance is made within twenty-one (21) days, you can refer the matter to a mediator and then if you can’t agree on a mediator one can be appointed where you can ask the office of the franchising mediation advisor to appoint a mediator.
If a mediation is initiated then you and the franchisor must attend to try and resolve matters at the mediation. If still in dispute and not able to be resolved then after the mediation, you can always proceed with your court action.
Depending on how serious some of the breaches are that are being alleged then other urgent action may be taken. Other steps of course, other than personal court action, you may be able to have the ACCC look at the conduct of the franchisor to investigate possible breaches of the act and take enforcement action at that level; however, that may not get your personal redress that you may be after as the ACCC is a regulatory body.
Again in any event get appropriate advice at the time and we remind you the cheapest part of any legal transaction is at the front end rather than at the back end when you’re in trouble. Talk to us immediately you believe there are any concerns.