Franchise code breaches could now result in $10 million fines

Businesses that are found to have breached the Franchising Code of Conduct now face potential fines of up to $10 million, as part of continued efforts to stamp out the mistreatment of smaller franchisees by large franchisors.

The federal government revealed on Friday that the maximum civil penalty for breaches of certain provisions of the franchising code, including provisions related to the automotive sector, have now increased to $10 million, or three times the benefit gained or 10% of annual turnover, for corporate bodies.

For unincorporated bodies, the maximum penalty in these cases will increase to $500,000, while for some other provisions, the penalties have been doubled, to $133,200.

According to the Federal Registrar of Legislation, the change will come into effect from April 15, 2022.

The changes follows a suit of reforms introduced by the government last year to help even out the power imbalance often evident in the franchising sector, which is estimated to be worth as much as $180 billion. According to the government, the sector employs more than 500,000 Australians.

The reforms to the franchising sector came into effect in June 2021, bringing in a suite of changes to exiting agreements, capital expenditure rules, restraint of trade closes and disclosure obligations.

Franchisors that require franchisees to significantly invest in their business, known as capital expenditure requirements, must now include more information in their disclosure documents.

To stop franchisors giving prospective franchisees false information about their potential earnings, the amended code also requires franchisors to meet stricter earnings disclosure requirements.

On Friday, the government said the higher penalties will “provide a strong deterrent against breaches of the code and prevent non-compliance from being factored into the cost of business, particularly by large multinational franchisors that seek to take advantage of small business franchisees”.

On the eve of the federal budget and months out from the election, Small Business Minister Stuart Robert claimed the change shows how the Morrison government “will always put small business first”.

“We will continue to protect hardworking Australian franchisees from being taken advantage of by poor practices and conduct,’ he said in a statement.

“These multinational franchises need to know that we stand up for our small and family businesses.”