The New Franchising Code of Conduct Explained

Competition and Consumer (Industry Codes-Franchising) Regulations 2024

Summary: The Australian franchising sector has seen several substantial regulatory reforms with the latest introduction of the new Competition and Consumer (Industry Codes-Franchising) Regulations 2024 (Cth) (the New Code). These regulations, which replaced the existing Franchising Code of Conduct, implement a staged commencement to allow industry participants adequate time to adapt. The first tranche of amendments took effect on 1 April 2025, and further significant changes took effect on 1 November 2025. This article examines the key amendments and their implications for franchisors, franchisees, and legal practitioners.

Application Of The New Code

The New Code applies to all franchise agreements entered into, transferred, renewed, or extended on or after 1 April 2025. For agreements predating this date, the former Code continues to apply unless and until such agreements are modified or renewed. Franchisors must therefore maintain dual compliance frameworks during the transitional period.

Key Amendments To The New Franchising Code

Effective From, 1 November 2025

Some of the amendments under the New Code that are effective on, and from, 1 November 2025 are highlighted below.

Early Termination Compensation and Return on Investment (ROI) Assurances

The November 2025 amendments introduce substantial new protections regarding financial viability and network changes:

• Compensation Mechanism: Franchise agreements (that is not a new vehicle dealership agreement) must incorporate mechanisms to compensate franchisees where the franchisor:
• Withdraws from the Australian market;
• Restructures the franchise network; or
• Alters the distribution model in a manner that materially and adversely affects franchisees.

The New Code specifies that franchise agreements must include a fair compensation formula if a franchisor terminates a contract for any of the above reasons, with specific reference to the following:

1. lost profit from direct and indirect revenue;
2. unamortised capital expenditure requested by the franchisor;
3. loss of opportunity in selling established goodwill; and
4. costs of winding up the franchised business.

Further, the New Code also requires franchisors to allow franchisees to return specified stock and essential or branded equipment that cannot be repurposed, and either buy them back or provide compensation.

These provisions broadly follow the compensation for early termination provisions that applied to new vehicle dealership agreements (and continues to apply in the New Code) and expands it to apply to other franchise agreements.

• ROI Assurance: Franchisors must ensure franchise agreements provide franchisees with a reasonable opportunity to make a return, during the term of the agreement, on any investment required by the franchisor as part of entering into, or under, the agreement. These provisions broadly replicate the reasonable return on investment provision that applied to new vehicle dealership agreements (and continues to apply in the New Code) and expands it to apply other franchise agreements.

The early termination compensation and return on investment provisions represent a significant expansion of franchisee financial protections for non-new vehicle dealership agreements and require careful contractual drafting by franchisors. A franchisor is subject to a civil penalty of 600 penalty units ($198,000 as at the date of this article) per breach of either of the relevant provisions.

Significant Capital Expenditure

New pre-contractual obligations regarding capital investment have been introduced, including

• Pre-Agreement Discussions: Franchisors must discuss significant capital expenditure requirements with prospective franchisees prior to entering into, renewing or extending the term or scope of a franchise agreement. It requires disclosing and discussing the significant capital expenditure set out in the Disclosure Document and discussing how the franchisee can reasonably recoup the expenditure having regard to the geographical area of operations of the franchisee.
• Documentation Requirements: These discussions should be documented to ensure transparency and informed decision-making.

A franchisor is subject to a civil penalty of 600 penalty units ($198,000 as at the date of this article) per breach of the provision.

What Franchisors Need To Do

data-wahfont="18")Franchisors must undertake a comprehensive review of their franchise documentation and operational procedures to ensure compliance with the staged amendments. Particular attention should be directed to:

• Updating franchise agreements and disclosure documents to reflect the April 2025 requirements and November 2025 requirements (including, implementation of ROI and significant capital expenditure provisions)
• Reviewing restraint of trade clauses for enforceability under the New Code
• Establishing compliant specific purpose fund administration systems

What Franchisees Need To Do

Existing franchisees operating under pre-April 2025 franchise agreements are not immediately affected unless their agreements are renewed or extended.

Key Amendments To The New Franchising Code Effective From 1 April 2025

Some of the amendments under the New Code that are effective on, and from, 1 April 2025 are highlighted below.

Termination Provisions

The April 2025 amendments revise termination mechanisms to balance franchisor protections with franchisee safeguards, and include the following:

• Serious Breach Termination:Franchisors now possess clearer statutory rights to terminate where franchisees commit serious breaches, enabling prompt action to protect brand integrity and public interest.
• Dispute Rights: Franchisees retain enhanced rights to dispute terminations, particularly where allegations involve voluntary abandonment, endangerment to public health or safety, or fraudulent conduct.

These amendments aim to provide franchisors with operational certainty while preserving franchisee procedural fairness.

Restraint of Trade Clauses

The New Code contains a restraint of trade provision similar to the provision in the old Code however, the post-term restraints have been substantially modified in that the New Code shifts from merely making certain restraint clauses unenforceable to expressly prohibiting them in specific circumstances.

The New Code provides that franchisors must not enter into a franchise agreement that includes (in the agreement or an associated document) a restraint of trade clause that would apply if a franchisee had an option to renew/extend the franchise agreement, the franchisee had fulfilled all conditions, the franchisor refused to renew or extend the agreement and the franchisee was not provided genuine compensation for goodwill because the agreement was not renewed or extended. This amendment prevents franchisors from restricting franchisees' post-term commercial activities without providing appropriate compensation for established goodwill.

As the New Code provision is now expressed as an obligation, a franchisor is subject to a civil penalty of 600 penalty units ($198,000 as at the date of this article) per breach of the provision.

Reduction of Administrative Burdens

The New Code streamlines operations and reduces red tape, by including provisions that address the following:

• Disclosure Exemptions: Prospective franchisees with existing or recent franchise relationships under the same franchisor may opt out of receiving certain disclosure documents, recognising their familiarity with the franchisor's operations.
• Cooling-Off Period Waivers: Existing franchisees acquiring additional units within the same network may waive standard cooling-off periods, facilitating expedited network expansion.

These provisions acknowledge the sophistication of established franchisees while maintaining core protections for new market entrants.

Specific Purpose Funds

The terminology and governance of collective funds have been modernised so that "Marketing" and "cooperative" funds are now encompassed within the broader category and single concept of "specific purpose funds," covering any contributions required for designated common purposes including technology or IT upgrades, refurbishment or renovations, training and conference funds.

The requirements for "specific purpose funds" are very similar to the requirements under the old Code for marketing and cooperative funds. The one change is that a fund administrator must now also provide information about the percentage of total income spent on meeting expenses identified under the fund, or to be used to pay reasonable costs of administering or auditing the fund. A grace period is available for this new requirement which commences on 1 November 2025.

These requirements enhance accountability in fund administration.

Alternative Dispute Resolution (ADR) Enhancements

To promote good faith participation in dispute resolution, the New Code empowersthe Australian Small Business and Family Enterprise Ombudsman to publish instances where franchisors refuse to engage in, or unilaterally withdraw from, alternative dispute resolution processes.

This transparency mechanism incentivises genuine participation in ADR.

Ongoing Disclosure of Materially Relevant Facts

The existing 14-day disclosure obligation for materially relevant facts has an added requirement that requires franchisors to now disclose to franchisees any legal proceedings initiated by a public agency or adverse judgments involving alleged contraventions of the Fair Work Act 2009 (Cth). This ensures franchisees remain informed of regulatory risks affecting the franchise system.

Litigation disclosure in Disclosure Documents

The Disclosure Document requirements have been updated to require disclosure of current proceedings for certain matters under theFair Work Act 2009(Cth),Independent Contractors Act 2006(Cth) or a law of a State or Territory that regulates workplace relations or independent contractors.

Existing franchisee disclosure in Disclosure Documents

The Disclosure Document requirements have been updated to require the franchisor to also supply a telephone number and email address (in addition to information already required) for a former franchisee if the information is available.

However, the new Code now prohibits a franchisor from disclosing a former franchisee's personal information to a prospective franchisee unless the franchisor at least 14 days before doing so, has informed the former franchisee, in writing, that the former franchisee may give a written request to the franchisor for their personal information not to be shared. A franchisor is subject to a civil penalty of 600 penalty units ($198,000 as at the date of this article) per breach of the provision.

Legal Advisory Services

The New Code imposes significantly stricter obligations upon franchisors, particularly regarding financial protections for franchisees and transparency. For these reasons, it is very important that franchisors have a comprehensive understanding of their obligations and implement compliant business practices to mitigate legal exposure and penalties under the New Code.

Our franchise lawyers provide strategic advice on franchise documentation compliance, system restructuring, and risk management under the New Code. For guidance on implementing these changes within your franchise system, please contact our franchise lawyers today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.