Operating a franchise in Australia

Franchising has penetrated key sectors contributing to Australia's economy. One of the largest sectors is mining, which accounts for a substantial portion of Australia’s economic output overall through the extraction of coal, iron ore, gold, and other minerals. Other sectors in which franchising plays a significant role include the financial sector, encompassing banking, insurance, and investment services, which plays a critical role in supporting economic growth; and health and education, which are vital for societal well-being and economic development, providing essential services and contributing significantly to employment.

Read more on international franchising

• Operating a franchise in the UK
• Operating a franchise in France
• Operating a franchise in Germany
• Operating a franchise in Ireland
• Operating a franchise in Luxembourg
• Operating a franchise in Spain
• Operating a franchise in the Netherlands
• Operating a franchise in South Africa
• Operating a franchise in China
• Operating a franchise in Singapore
• Operating a franchise in the UAE
• Operating a franchise in Saudi Arabia
• Operating a franchise in Qatar

The manufacturing sector, which includes the production of goods such as machinery, equipment, and consumer products, helps diversify the economy. Lastly, the construction sector, involving the building of infrastructure, residential and commercial properties, is crucial for economic development.

Legal considerations 

The primary legislation governing franchising in Australia is the Franchising Code of Conduct (the code), which is a mandatory industry code under the Competition and Consumer Act 2010. This code sets out the rights and obligations of franchisors and franchisees, including requirements for disclosure, conduct and dispute resolution.

Following recent amendments, the code ensures franchisees are provided compensation for early termination of the agreement if the franchisor withdraws from the Australian market, rationalises its networks in Australia or changes its distribution models in Australia. A franchise agreement must specify how compensation is to be calculated with references to key factors such as loss of profits and loss of opportunity.

Additionally, franchising arrangements are subject to the Australian Consumer Law and the Competition and Consumer Act 2010, which provide protections against unfair practices and misleading conduct.

The Franchise Council of Australia (FCA) is the industry body that represents franchisors, franchisees, and service providers to the sector. While the FCA does not have regulatory authority, it promotes best practices and provides resources and support to its members. There are no specific unofficial codes or standards for franchising beyond the Franchising Code of Conduct.

Structure

A franchisor in Australia is typically a limited liability company, but other structures like partnerships or sole traders are also possible. There is no requirement for the franchisor to be a local entity or wholly owned by nationals.

Franchisees can operate as limited companies, partnerships or sole traders. There are no legal requirements for them to be local entities or owned by nationals.

Franchisors and franchisees are bound by a general duty of good faith when negotiating franchise agreements, and when dealing with the code.

Non-compete obligations are allowed in Australia during the franchise term and for a limited period after its termination, provided they are reasonable in scope and duration.

Franchisors are prohibited from entering into a franchise agreement unless they provide the franchisee with a reasonable opportunity to make a return during the franchise term. This may require the franchisor to be able to demonstrate commercial analysis undertaken when considering how best to structure their business.

Franchisors in Australia are generally not allowed to set fixed or minimum resale prices on franchisees, however, they can recommend or set maximum resale prices.

There are no specific restrictions on the term length or renewal length of franchise agreements in Australia. These terms are typically negotiated between the franchisor and franchisee and do not need to be registered with a local authority in Australia.

There are no specific formalities regarding the language of documents or branding translations. However, it is essential to ensure that all documents are clear and understandable to all parties involved. It is also a requirement for franchisors to create a profile and publish certain key information on the Australian Franchise Disclosure Register and keep it updated on an annual basis.

Franchisors are required to make a pre-contract disclosure to potential franchisees by providing a ‘franchise disclosure document’ (FDD) at least 14 days before entering into the franchise agreement. The FDD does not need to be registered with any government authority.

The disclosure document must be in the form provided in the code and must include general information on the franchisor, its officers and their experience working in the franchise system, as well as litigation history of the franchisor, its director and associates. Franchisors must also disclose information relevant to the day-to-day operations of the franchise including intellectual property, supply of goods and services, capital expenditure, and dispute resolution under the agreement.

Intellectual property 

Trade marks in Australia are registered through IP Australia, the government agency responsible for administering intellectual property rights. Once registered, trade marks are protected under the Trademarks Act 1995, and enforcement can be sought through the courts if infringements occur.

Franchises in Australia benefit from protections for trade secrets, copyrights, patents and design rights. Confidential information is safeguarded under contractual agreements.