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Franchising Disputes

The Franchising Code of Conduct (the Code) is a mandatory code that applies to all businesses involved in a franchise. The Code describes the behaviours expected of franchisees and franchisors and includes a process for managing disputes.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can help with information on the dispute resolution process under the Code and provide access to an ADR practitioner or arbitrator if required.

The steps for dispute resolution under the Code are outlined below. Lodge a form about your dispute if you wish to discuss, or to receive additional information.

Changes to the Franchising Code of Conduct were enacted in June 2021 to increase fairness in franchising. You can find out more about the changes here.

Internal dispute resolution

The Code provides for both internal dispute resolution (using the franchisor’s established system) and Code-based dispute resolution procedures. Parties in dispute may attempt to resolve the dispute under either of these options. Parties should read the procedure in your franchise agreement and decide which process you’d like to use.

If the agreement’s internal dispute resolution process does not meet the minimum requirements of the Code, the Code’s procedures apply.

Disputes relating to early termination of a franchising agreement also fall under the Code’s dispute resolution process.

Franchising Code Dispute Resolution Process

If the dispute is not resolved through the internal dispute resolution process, the parties may refer the matter to mediation.

This a cost-effective dispute resolution option for franchisees and franchisors under the Code. Appointed mediators help franchisors and franchisees to resolve their dispute without going to court.

Once mediation is requested, it becomes mandatory for both parties to attend and to genuinely try to resolve the dispute.

There is a specialist panel of franchise dispute mediators in each state and territory.

Please use this form to provide feedback on your mediation experience.

Disputes about early termination of franchise agreement

The changes to the Code enacted in June 2021 allow for a process to be followed should a franchisee wish to terminate their franchise agreement early.

Under the Code, at any time a franchisee may give their franchisor a written proposal for early termination of their franchise agreement. The proposal should include the terms of termination, and the reasons for the termination.  Note that the proposal may be different from the terms set out in the franchise agreement.

Once the franchisor has received the proposal for early termination, it must give the franchisee a substantive written response to the proposal within 28 days.

Should the franchisor not agree to terminate on the terms proposed, the matter may be considered to be in dispute and trigger the dispute resolution process in this document. The franchisor is required to include reasons for the refusal in the response.

Note that, following a response from the franchisor to the written proposed termination (the earlier proposal), the franchisee may provide another written proposal for termination (the later proposal) for a different reason than given for the earlier proposal.  Again, the franchisor is required to provide a substantive written response within 28 days.

If the franchisor does not agree to terminate on the terms proposed, the matter may be considered in dispute and the dispute resolution process can be triggered.  The franchisor is again required to provide reasons for the refusal.

Notice of dispute

If a dispute arises, the first step that you can take as prescribed in the Code, is to send the other party a notice of dispute outlining:

  • the nature of the dispute
  • what outcome you want
  • what action you think will resolve the dispute.

Once your notice of dispute is sent to the other party, you and the other party are required to negotiate in good faith to try and reach a solution to the dispute.

Negotiations may first involve agreement on how to resolve the dispute. Examples of ways that parties may agree on how to resolve a dispute could include:

  • agreement to a meeting or telephone call to discuss the dispute
  • agreeing to binding arbitration should the dispute be unable to be settled through the ADR process (such as med-arb, a process of mediation with options to arbitration of issues unresolved) or
  • agreement to conciliation as the most appropriate ADR process.

If you can’t agree on an outcome within three weeks, either party may refer the matter to an Alternative Dispute Resolution (ADR) practitioner for an ADR process.

The process to follow for multi-franchise disputes, where there are a number of franchisees with similar disputes, can also be handled through this ADR process.

ADR process

An ADR process under the Code means conciliation or mediation. The process is a cost-effective dispute resolution option for franchisees and franchisors under the Code. Where parties are unable to resolve a dispute through mutual negotiation, either party may refer the matter to an ADR process.

The ADR process is a structured negotiation process in which an independent person, the ADR practitioner, assists the parties to identify and discuss options to resolve their dispute. The focus is on the interests of the parties rather than their adopted position and aims to avoid expensive and lengthy court proceedings.

Once an ADR process is requested, it becomes mandatory for both parties to attend and to genuinely try to resolve the dispute in good faith.

ASBFEO maintains a specialist panel of ADR practitioners across each state and territory. All practitioners are accredited under the National Mediator Accreditation Standards system. Whilst the majority of the practitioners are practising lawyers, they are not able to provide legal advice as part of the ADR process.

Our office will assist with arranging the ADR practitioner. If both parties cannot agree on an ADR practitioner, the Ombudsman can appoint an ADR practitioner for the dispute. This appointment is to be made within 14 days of the request being received by ASBFEO to appoint the ADR practitioner.

Once the practitioner has been chosen, the process is then passed on to them to manage fully, independently from our office. The parties share the cost of the ADR practitioner (unless the parties agree otherwise). The ADR practitioner will advise you of their costs. In general, the practitioner has a half day rate and a full day rate. The length of time the ADR process will take depends on the complexity of the issue. On average, our office has found that mediation costs around $4,000 ($2,000 per party for two parties to the dispute), but may vary widely. The ADR practitioner may also seek costs for any associated expenses (for example: room hire or travel expenses) and the cost of expert reports if necessary.

The ADR practitioner is obligated to report back to our office to confirm whether the ADR process has occurred, if parties acted in good faith, and if the dispute was resolved or remains unresolved. The details of the process remain confidential. You will be provided with a feedback form from the practitioner which you can provide either directly to the practitioner, or to our office.

Before, after or at any point during the ADR process, with the written agreement of both parties, there is an option to break off for arbitration.

Note that all parties must observe any confidentiality requirements relating to information disclosed or obtained in dealing with or resolving the dispute by an ADR process or arbitration.

Multi-franchisee disputes

The Code provides a procedure for resolving disputes where there are two or more franchisees with similar disputes under their franchise agreements with the same franchisor.

In these circumstances, you and the other parties may agree to resolve the disputes in the same way. If there is agreement, all the franchisees or the franchisor may refer the matter to a single Alternative Dispute Resolution (ADR) practitioner for a single ADR process.

If the matter is referred to a single ADR practitioner for a single ADR process by a group of franchisees, the franchisor is required to attend the ADR process and try to resolve the dispute under the Code.

Note that each dispute remains separate, even if there is a single ADR process. This means that the ADR practitioner may deal with the disputes together, in groups or individually in order to best resolve the disputes.

For the purpose of deciding whether to agree to resolve their disputes in the same way, franchisees may discuss their disputes with each other despite their confidentiality requirements provided in the franchise agreements.

Flowchart of dispute resolution process