2025 Changes to the Franchise Code of Conduct: What You Need to Know
The Franchise Code of Conduct has undergone significant updates in 2025, introducing new rules and protections for both franchisors and franchisees. These changes aim to create a fairer and more transparent franchising landscape in Australia.
If you are part of a franchise system, understanding these updates is crucial. The changes impact how franchise agreements are structured, terminated, and renewed, as well as the obligations of both parties. From restraint of trade clauses to faster termination processes and new disclosure requirements, these reforms are designed to balance the interests of franchisors and franchisees while promoting better business practices. Below, we break down the key changes, their implications, and what you need to do to stay compliant.
Key takeaways
The 2025 updates to the Franchise Code of Conduct introduce several critical changes. Franchisors can no longer include restraint of trade clauses in agreements that extend beyond the original term. Faster termination processes for serious misconduct and simplified renewal processes are now in place. New disclosure obligations, including details about significant capital expenditure and fund contributions, aim to improve transparency. Additionally, the Australian Small Business and Family Enterprise Ombudsman now has the power to publicly name franchisors who refuse to engage in dispute resolution. These changes reflect a broader effort to create a fairer and more balanced franchising environment.
What are the key changes to the Franchise Code of Conduct?
The 2025 updates to the Franchise Code of Conduct introduce a range of measures designed to improve fairness, transparency, and efficiency in the franchising sector. These changes address long-standing concerns from both franchisors and franchisees and aim to create a more balanced relationship between the two parties.
Restraint of trade clauses
One of the most significant changes is the prohibition of restraint of trade clauses in franchise agreements. From April 1, 2025, franchisors cannot include clauses that restrict a franchisee’s ability to operate a similar business after the agreement expires, even if the franchisee wishes to extend or renew the agreement. This change is designed to give franchisees more freedom to continue their business ventures without unnecessary legal barriers. Franchisors who include such clauses in their agreements now face civil penalties, making it essential to review and update existing contracts.
Faster termination for serious misconduct
The updated Code also introduces a faster termination process for cases involving serious misconduct by franchisees. Previously, termination could be a lengthy process, but now franchisors can terminate an agreement within just seven days if serious misconduct is identified. This change provides franchisors with a more efficient way to address issues that could harm their brand or business operations. However, it also underscores the importance of clear documentation and adherence to due process to avoid potential disputes.
Simplified renewal processes
Renewing a franchise agreement has been streamlined under the new rules. If a franchisee is renewing an agreement with terms similar to the original, they can now opt out of the mandatory 14-day cooling-off period and disclosure requirements. This change reduces administrative burdens and makes it easier for franchisees to continue their business operations without unnecessary delays. It also reflects a broader effort to simplify processes and reduce red tape in the franchising sector.
Public naming of non-compliant franchisors
The Australian Small Business and Family Enterprise Ombudsman now has the authority to publicly name franchisors who withdraw from or refuse to participate in dispute resolution processes. This measure is intended to encourage franchisors to engage in good faith negotiations and resolve disputes amicably. Public naming can have significant reputational consequences, making it a powerful tool for ensuring compliance and accountability.
New disclosure obligations for franchisors
The 2025 updates also introduce stricter disclosure obligations for franchisors, aimed at providing franchisees with clearer and more comprehensive information before they commit to an agreement. These changes are designed to enhance transparency and help franchisees make more informed decisions.
Disclosure of significant capital expenditure
From November 1, 2025, franchisors must disclose any significant capital expenditure required by franchisees. This includes costs associated with upgrading equipment, renovating premises, or other major investments. By providing this information upfront, franchisees can better assess the financial commitments involved in operating the franchise and avoid unexpected expenses. This change is particularly important for small business owners who need to plan their finances carefully.
Information about specific purpose funds
Franchisors are now required to provide more detailed information about specific purpose funds, such as marketing or training funds, that franchisees are required to contribute to. This includes how the funds are managed, what they are used for, and any associated costs. The goal is to ensure franchisees understand where their contributions are going and how they benefit the franchise system as a whole. This transparency helps build trust and ensures that franchisees feel confident in their investment.
Protections for franchisees
The updates to the Franchise Code of Conduct also introduce stronger protections for franchisees, ensuring they have a fairer and more secure business environment. These changes reflect a growing recognition of the challenges faced by franchisees and the need for better safeguards.
Reasonable opportunity to earn a return on investment
From November 1, 2025, franchise agreements must provide franchisees with a reasonable opportunity to earn a return on their investment. This requirement ensures that franchisees are not entering into agreements that are inherently unprofitable or unsustainable. Franchisors must carefully consider the financial viability of their franchise model and ensure that franchisees have a realistic chance of success. This change is a significant step towards creating a more equitable franchising system.
Compensation for early termination
In some circumstances, franchisees may now be entitled to compensation if their franchise agreement is terminated early. This protection is designed to provide franchisees with financial security if their business is disrupted through no fault of their own. It also encourages franchisors to think carefully before terminating agreements and to explore alternative solutions where possible. This measure helps balance the power dynamics between franchisors and franchisees and ensures fairer outcomes for all parties.
Why legal advice is essential
With these significant changes to the Franchise Code of Conduct, it is more important than ever for both franchisors and franchisees to seek expert legal advice. Navigating the complexities of franchise law can be challenging, and ensuring compliance with the new rules is critical to avoiding penalties and disputes.
The business and commercial law experts at GLG Legal are well-versed in the latest legislative changes and can provide tailored advice to help you understand your rights and obligations. Whether you are drafting a new franchise agreement, renewing an existing one, or dealing with a dispute, having the right legal support can make all the difference. Contact GLG Legal today to ensure your franchise operations are compliant and protected on: (07) 3161 9555 or email: info@glglegal.com.au to make an appointment.
FAQs
What is the Franchise Code of Conduct?
The Franchise Code of Conduct is a set of regulations that govern the relationship between franchisors and franchisees in Australia. It aims to ensure fairness, transparency, and good faith in franchise agreements and operations.
When did the changes to the Franchise Code of Conduct come into effect?
The changes to the Franchise Code of Conduct began taking effect from April 1, 2025, with additional updates introduced on November 1, 2025.
What are restraint of trade clauses, and why are they banned?
Restraint of trade clauses restrict franchisees from operating similar businesses after their franchise agreement expires. These clauses are now banned to give franchisees more freedom and flexibility in their business ventures.
What happens if a franchisor includes a banned clause in an agreement?
Franchisors who include banned clauses, such as restraint of trade provisions, in their agreements may face civil penalties. It is important to review and update agreements to ensure compliance with the new rules.
How can GLG Legal help with franchise agreements?
GLG Legal specialises in business and commercial law, including franchise agreements. Their experts can provide advice on compliance, dispute resolution, and contract reviews to ensure your franchise operations are legally sound and protected.