Franchising is a popular business model across Australia, from bustling coffee franchises and thriving auto parts dealerships to the ever-growing world of gyms and fitness studios. But with franchising comes the challenge of balancing power between franchisors (the brand owners) and franchisees (the local operators who’ve invested heavily to run the business).
That’s exactly why the Franchising Code of Conduct was introduced — and now, it’s getting an overhaul. Starting 1 April 2025, a new Franchising Code of Conduct will come into effect, bringing important changes designed to give franchisees more protection and a fairer deal.
Why the Changes? A Quick Look Back
These changes trace their roots to the 2019 Parliamentary Enquiry into the Franchising Sector, which exposed widespread power imbalances and unfair practices in the industry. Many franchisees reported being locked into unfair contracts, left with little recourse when things went wrong, or blindsided by major network changes that left them financially stranded. The 2019 review was a wake-up call, highlighting that while franchising can be a path to small business success, the system too often left franchisees exposed. The new Code aims to level the playing field, offering clearer protections, improved dispute resolution processes, and stronger requirements for franchisors to act fairly.
Key Changes Franchisees Should Know
1. A ‘Reasonable Opportunity’ to Make a Return on Investment
Under the new rules, franchise agreements must ensure franchisees have a reasonable opportunity to make a return on the money they have invested. This one of the biggest changes in the new Franchising Code of Conduct. It expands a rule that previously applied only to new car dealership franchises and applies it to all franchises.
The 2019 Parliamentary Enquiry found that some franchisees were being set up to fail, particularly in systems where:
- Initial investment costs (fit-outs, equipment, etc.) were extremely high.
- Operating costs were heavily dictated by the franchisor (e.g., compulsory suppliers, marketing levies, etc.).
- Profit margins were so low that the franchisee had no realistic chance of recovering their upfront investment — even if they followed the franchisor’s system perfectly.
This change is designed to address that imbalance, particularly in systems where franchisors profited from franchisee entry fees and compulsory purchases, while franchisees themselves struggled to make a sustainable return.
However, the new Code doesn’t define what a ‘reasonable return’ means. This lack of definition creates significant uncertainty. What is considered ‘reasonable’ will likely depend on:
- The type of franchise (a low-margin fast food business vs. a high-margin specialty service).
- The initial investment required.
- The local market conditions.
- What the franchisor disclosed about potential earnings.
While the change doesn’t guarantee profits nor remove the inherent risks of running a business (business is still business), the franchisor must structure agreements, so franchisees have a genuine chance at recouping their investment. This change is designed to protect franchisees from entering deals where success is near-impossible from the start.
Practical tip: Work with your financial advisors to ensure the franchisor has made robust financial disclosures that help you to assess what may constitute a ‘reasonable return’ on investment in the relevant industry.
2. Compensation for Early Termination
If your franchisor decides to pull out of the Australian market, rationalise its network, or change the way they distribute goods or services, they could be forced to compensate you. For example, if a fitness franchise switches to online-only workouts, leaving studio operators high and dry, they may have to buy back unsold branded products (like signage, gym equipment, or uniforms) and pay compensation.
What’s not clear (the grey areas), is the Code doesn’t define key terms like:
- ‘Rationalisation’ — Does this include closing underperforming stores? Or only whole segments of the network?
- ‘Change in distribution model’ — Does adding an online sales channel count? Or only replacing franchisees entirely with online direct sales?
This lack of clarity will likely lead to disputes.
Key Takeaway for Franchisees:
- Ensure your franchise agreements clearly list required equipment and stock — this will make it easier to claim compensation if restructuring occurs.
- Ask franchisors about their long-term strategy and any planned changes before signing or renewing an agreement.
- Engage legal advice to ensure your agreement includes all the protections available under the new Code.
Stay informed and protect your business, call us on 1300 654 590 or email us to ensure you’re fully covered under the new Code.
3. Limits on Restraint Clauses
The Franchising Code of Conduct introduces important restrictions on restraint of trade clauses in franchise agreements. These changes are designed to protect franchisees’ ability to earn a living and build on the relationships and experience they’ve gained in their franchise business, even after their agreement ends.
Under the current Code, franchisors can include restraint of trade clauses in franchise agreements. These clauses prevent franchisees from opening or working in a competing business in a defined area for a certain period after the franchise agreement ends.
The new Code limits when franchisors can enforce these clauses — particularly in cases where:
- The franchisee wanted to renew or extend their franchise agreement, but the franchisor refused.
- The franchise agreement included an option for renewal, but the franchisor chose not to offer that renewal.
In these situations, from 1 April 2025, franchisors cannot enforce a restraint of trade clause after the franchise agreement expires.
The new restraint clause limitation gives franchisees more freedom to continue working in their chosen field and location after their franchise ends — if the franchisor chose not to renew the relationship.
4. Clearer Dispute Resolution (With Exceptions)
Dispute resolution is getting a refresh too. The new Code continues to promote alternative dispute resolution, including mediation, conciliation, and arbitration, as preferred ways to resolve disputes between franchisors and franchisees. This helps avoid costly and time-consuming litigation, which can be particularly damaging to franchise relationships.
However, franchisors can bypass formal mediation if there’s a proven case of serious misconduct. In such cases, they’ll be able to terminate your agreement with just 7 days’ notice.
The Code itself does not define exactly what types of conduct qualify as ‘serious misconduct.’ Instead, it will likely be interpreted by:
- Case law (future court rulings);
- Guidance from regulators like the Australian Competition Consumer Commission (ACCC);
- The specific terms and conditions written into each franchise agreement.
Franchisees, should:
- Carefully review how ‘misconduct’ is defined in any agreement they sign.
- Understand what actions could put their agreement at risk.
- Ensure they have opportunities to correct minor breaches before they are escalated to “serious misconduct.”
For advice and documents, we provide a fixed or capped quote so you don’t take price risk. Call us on 1300 654 590 or email us to ensure your agreement safeguards your rights.
5. Higher Penalties for Breaches
The 2019 Parliamentary Inquiry into Franchising uncovered a pattern of non-compliance and questionable conduct in parts of the franchising industry, especially from larger franchisors. One of the key findings was that the previous penalties were simply too low to act as a meaningful deterrent — especially for large, well-resourced franchisors.
In other words, some franchisors were effectively treating non-compliance as a cost of doing business.
Franchisors who ignore the new rules will face significantly higher civil penalties (almost double for some breaches). The new penalties are designed to:
- Make non-compliance a serious financial risk — even for big franchisors.
- Ensure it’s cheaper to follow the rules than to breach them.
- Send a clear message that franchisor misconduct will not be tolerated.
How We Can Help
The new Code brings more rights, but also more complexity. Here’s how we can help you navigate this new landscape:
- Pre-signing contract reviews – Ensuring the agreement gives you a fair chance to succeed under the new ‘reasonable return’ requirement.
- Assessing compensation clauses – Making sure you understand your rights if the franchisor changes the game plan.
- Interpreting restraint clauses – Ensuring you keep future options open, particularly if you’ve built up a strong local customer base.
- Dispute advice – Guiding you through the new dispute resolution process if disagreements arise.
Final Word – What Should Franchisees Do Now?
If you’re already in a franchise, your current agreement won’t automatically change on 1 April 2025 — but any conduct which relates to renewals, extensions, or new agreements after that date will fall under the new rules.
What you can do now:
- Review your current agreement with your lawyer to understand how these changes could affect your renewal or expansion plans.
- Ask your franchisor how they plan to comply with the new requirements — they should already be preparing.
- If you’re thinking of buying a franchise, make sure any new agreement is drafted with the 2025 Code in mind — it’s not just about avoiding risk, but securing your rights upfront.
The 2025 Franchising Code aims to rebalance power and protect franchisees’ investments — but the devil will be in the detail. A trusted legal advisor can help you make sense of the fine print and position your franchise for long-term success. Call us on 1300 654 590 or email us today.
The information contained in this post is current at the date of editing – 14 March 2025.
