Within Australia, the Franchising Code of Conduct serves as a regulatory framework for establishing and operating franchise systems. This Code promotes equitable interactions between franchisors and franchisees, specifically mitigating the power imbalance that often disadvantages franchisees.

Through its mandated rules, it aims to establish a more balanced environment, preventing franchisee exploitation and ensuring that both franchisors and franchisees conduct business with clarity and impartiality.

Reasons These Changes Are Being Proposed in 2025

The 2025 Code of Conduct revisions are driven by the necessity for legislation to mirror evolving industry dynamics. These updates aim to maintain the Code’s relevance by aligning it with current sector requirements. A Treasury-led independent review culminated in the October 2024 Exposure Draft, prompting public consultation. A revised one was issued, scheduled for enactment on 1 April 2025.

This updated document prioritizes enhanced franchising transparency and fairness through new regulations. Notably, its application begins for agreements after 1 April 2025. A transitional period until 1 November 2025 permits franchisors to adjust to specific new stipulations, facilitating a measured adaptation process.

2025 Franchising Code of Conduct: Main Changes Summarized

The 2025 amendments to Australia’s Franchising Code of Conduct aim to rectify power imbalances and enhance fairness between franchisors and franchisees. While still subject to final revisions, these changes introduce significant adjustments impacting small businesses.

  • • Enhanced Clarity and Integration – The Code’s purpose will be explicitly defined and integrated as a chapter within the broader regulatory framework, ensuring consistency across related laws.
  • • Investment Return Opportunity – Franchisors must ensure franchise agreements offer franchisees a reasonable opportunity to achieve an investment return. This doesn’t guarantee profit, but agreements must be fair and subject to judicial review.
  • • Early Termination Compensation – All franchisors must compensate franchisees for early termination under specific circumstances (e.g., market exit, network restructuring, business model change). Agreements must detail compensation calculations, including lost profits and investment costs.
  • • Simplified Pre-Entry Disclosure – The Key Facts Sheet is eliminated, and its information is integrated into the disclosure document, streamlining the process.
  • • Streamlined Renewals – Renewals for existing franchisees will require less documentation than initial agreements, reducing administrative burdens.
  • • Increased Penalties – Penalties for breaches have doubled, reaching $133,200 for most violations. Serious corporate breaches can result in fines of up to $10 million or a turnover percentage.
  • • Public Naming of Non-Compliant Franchisors – The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can publicly name franchisors who fail to participate in dispute resolution, increasing transparency.
  • • Service and Repair Clarity – The Code now explicitly applies to service and repair work within motor vehicle dealership franchises, aligning with industry practice.
  • • Specific Purpose Funds – Marketing and cooperative funds are consolidated into “specific purpose funds,” which are subject to strict reporting and auditing. Franchisors must maintain separate accounts, document expenses, and provide transparent records.
  • • Reasonable Legal Costs – Legal costs incurred by franchisees must be reasonable, itemized, and clearly stated in the agreements. Franchisors must retain relevant documentation for six years.

Impact On Small Businesses

The revisions necessitate heightened compliance efforts for your small business. Adapting your documentation, systems, and operational procedures to reflect these forthcoming changes is crucial. Proactive adjustments, rather than delayed responses, will mitigate potential future complications.

Given the increased penalties for non-compliance, as previously outlined, maintaining strict adherence to these new obligations is paramount. Implementing these compliance measures into your business operations promptly will secure your business’s alignment with the changes and prevent avoidable risks.

Actionable Steps

Immediate action is advised to revise core documents, notably your Franchise Agreement, in anticipation of the imminent changes to the Franchising Code of Conduct. Engaging a franchising legal specialist now can mitigate future complications and stress. These experts can provide tailored guidance, ensuring alignment with the updated Code and protecting your business interests.

Franchisors must particularly assess how the new Code impacts existing franchise relationships to prevent potential uncertainties. Section 97 of the revised Code states that its provisions apply to agreements and conduct from 1 April 2025. However, compensation for early termination and reasonable investment return rules are exempt for agreements established before 1 November 2025.

Key Takeaways

  • • Enhanced Fairness and Transparency – The 2025 Code updates aim to improve fairness and transparency, establishing a more balanced relationship between franchisors and franchisees.
  • • Investment Return and Compensation – Franchisors must ensure reasonable investment return opportunities and provide compensation for early termination, thereby offering greater franchisee security.
  • • Simplified Documentation – Documentation is simplified for pre-entry disclosure and renewals, reducing administrative overhead.
  • • Increased Penalties – Non-compliance penalties are significantly improved, underscoring the importance of adherence.
  • • Transparent “Specific Purpose Funds” – “Specific purpose funds” require transparent management, ensuring clear accountability.
  • • Reasonable Legal Costs – Legal costs must be reasonable and documented, protecting franchisees from excessive charges.
  • • Motor Vehicle Dealership Clarity – The Code clarifies its application to motor vehicle dealerships, standardizing practices.
  • • Phased Implementation – Phased implementation allows businesses time to adapt, facilitating a smoother transition.
  • • Proactive Compliance – Proactive compliance is essential to avoid penalties; early adaptation is key to long-term stability and the prevention of potentially costly legal issues.

Important Points To Note About These Changes

  • • New Agreements – All franchise agreements initiated or renewed after 1 April 2025 must comply with the updated Franchising Code.
  • • Existing Agreements – Agreements made before 1 April 2025 remain under the current Code and do not require immediate updates.
  • • New Franchisees (Post-April 1, 2025) – Franchisors onboarding new franchisees after 1 April 2025 must ensure their standard franchise agreement and disclosure documents align with the new Code’s requirements.

To arrange a document review, please email your current franchise agreement and disclosure document to the Sprintlaw Team at partnerships@sprintlaw.com.au. We will contact you within one business day with the steps you need to follow, and our team is here to provide sound and accurate advice.

Please note that you’re eligible for a 10% discount by mentioning that you’re from The Franchise Institute. For more details on changes to franchising laws and other information about franchising, call The Franchise Institute at 1300 855 435. Alternatively, please use the contact form here and we will call you back.