Implications of the 2025 Updates to the Franchising Code of Conduct

Background to Reforms

The franchising sector has historically been characterised by tension between franchisors and franchisees particularly in relation to disclosure practices, termination rights and management of disputes. The updated 2025 Code seeks to modernise the framework and strengthen protections for franchisees by reinforcing franchisor’s accountability.

The 2025 updates to the Code were driven by multiple reviews including:

· the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into franchising in 2019;

· the 2023 review of the Code undertaken by Treasury; and

· ongoing advocacy from franchisee groups, regulators and small business representative.

Ahead of implementing the changes, the government released an Exposure Draft of the Code in October 2024 and invited feedback from the industry. In December 2024, after reviewing the feedback received, the government released the updated version of the Code.

The new Code is prescribed under section 51AEA of the CCA and remains mandatory for both franchisors and franchisees. The former Code was repealed and replaced by the Competition and Consumer (Industry Codes – Franchising) Regulations 2024 (Cth), which came into effect on 1 April 2025, with most changes commencing on that date and certain obligations, including those relating to disclosure, return on investment and compensation, applying only to new agreements or renewals from 1 November 2025.

Key Changes and Updates

Some of the key changes and updates to the Code include:

· simplifying and restricting the Code to be in plain English and to include sections instead of clauses;

· enhancing disclosure obligations;

· amendments to marketing and cooperative funds;

· penalties for enforcing restraints of trade for non-renewal or extension;

· expansion of motor vehicle dealership protections;

· compensation for early termination by franchisor;

· amendments to provisions allowing for termination with seven days’ notice;  

· amendments to alternative dispute resolution process; and

· increased penalties to 600 penalty units for certain offences.

Some further details of the changes are outlined below.

‍Marketing and Cooperative Funds

Under the new Code, marketing and cooperative funds are referred to as specific purpose funds which allows for the expanded definition to cover funds allocated for anything specified under the specific franchise agreement.

Enhanced Disclosure Obligations

Disclosure obligations are a core mechanism of the Code and are designed to ensure franchisees are making an informed decision when entering into a franchise agreement and network. Some of the changes to disclosure obligations have included:

· removal of the requirement for a key facts sheet to avoid duplicating information;

· whether the franchisee will be required to undertake significant capital expenditure which now includes major costs disclosed in the franchise document;

· the franchisor is now required to notify franchisees of decisions not to renew or extend a franchise agreement compared to previously where their sole obligation was to notify of an intention to do one or the other;

· the option for franchisees to opt-out of receiving updated disclosure documents and the 14-day cooling off period when renewing agreements; and

· the obligation of the franchisor to disclose certain types of legal proceedings commenced by a regulator for breached of the Fair Work Act 2009 (Cth) where a franchisee committed the offence or the franchisor (or an office of the franchisor) should have known the offence would or did occur.

Restraints of Trade

A priority of the 2025 reforms to the Code was to address how restraints of trade clauses are used in franchise agreements where a franchisee seeks to renew or extend an existing agreement. Under the reformed code:

· Franchisors are prohibited from including a restraint of trade clause in a franchise agreement that would apply when the agreement expires after a franchisee has sought renewal or extension on substantially similar terms.

· The above prohibition applies whether the clause is in the primary franchise agreement or incorporated by reference in another document.

The Code specifies that these restraints do not apply when the franchisee:

· had the option to review and extend;

· provided written notice seeking renewal/extension under terms substantially similar to the current terms;

· met all renewal or extension conditions;

· was not in serious breach immediately before expiry of the agreement; and

· either received inadequate goodwill compensation or could not claim good faith compensation.

Civil penalties are now applied if a franchisor includes prohibited restraint provisions in agreements governed by the new Code.

Reasonable Opportunity for Return on Investment

Previously, a requirement for a reasonable opportunity for return on investment applied only to certain sectors, such as new motor vehicle dealerships. The 2025 Code expands this requirement to all franchise agreements that are entered into, extended, renewed, or transferred from 1 November 2025.

Failure to comply exposes franchisors to civil penalties consistent with the Code’s broader enforcement framework.

Compensation for Early Termination

Under the updated Code, franchisors must compensate the franchisee for early termination or closure of the network. This applies if the franchisor leaves the Australian market, reorganises the network or changes its distribution model.

Compensation must be objectively determined and can consider factors such as lost profit, unamortised capital expenditure, goodwill losses, and costs of winding up a business.

Changes to 7-Day Termination Provisions

The 2025 Franchising Code preserves a franchisor’s ability to terminate a franchise agreement on 7 days’ written notice in serious circumstances such as insolvency, abandonment, fraud, criminal conduct, or risks to public health or safety. However, the updated Code strengthens procedural safeguards by requiring termination notices to clearly identify the relevant ground relied upon and explain the factual basis for the termination, rather than relying on generic or technical assertions.

The Code also clarifies that the statutory good faith obligation applies to the exercise of 7-day termination rights, meaning franchisors must not rely on contrived or ulterior grounds, including to avoid renewal, compensation, or restraint-of-trade obligations. Franchisees retain access to the Code’s dispute resolution and ADR mechanisms, allowing them to challenge whether the termination was properly invoked and exposing non-compliant franchisors to civil penalties and regulatory scrutiny. However, there has been a partial removal of the rapid ADR option after receiving a notice for termination within 7-days.

Do existing franchise agreements need to be updated?

While existing agreements are not automatically invalid, many will need to be reviewed and amended to ensure ongoing compliance where agreements are renewed, extended, or varied after the new Code takes effect.

Implications for Franchisors

The updated Code increases compliance expectations for franchisors. Existing franchise agreements, disclosure documents, and system manuals must be reviewed and, in many cases, amended, as reliance on legacy documentation or historic systems now carries a heightened risk of non-compliance, civil penalties, and regulatory scrutiny.

From a commercial standpoint, franchisors may need to reassess how their franchise systems are structured. The expanded “reasonable” return on investment requirement and restrictions on post-term restraints may require longer agreement terms, revised fee models, or alternative mechanisms to protect brand value. Franchisors will also need stronger internal governance and decision-making processes, particularly when dealing with renewals, terminations, and system-wide changes, to ensure they can demonstrate compliance with the Code’s good faith and procedural requirements.

Implications for Franchisees

For franchisees, the 2025 reforms deliver enhanced protections and greater transparency throughout the franchising lifecycle. Updated disclosure requirements provide more detailed and current information before entering or renewing a franchise agreement, supporting more informed commercial decision-making. The expansion of reasonable opportunity for return on investment obligations and compensation rights in early termination scenarios offers greater security for franchisee capital investment.

The reforms also strengthen franchisees’ position in negotiations and disputes. Restrictions on restraints of trade following non-renewal, clearer limits on short-notice termination rights, and improved access to dispute resolution mechanisms reduce the risk of disproportionate franchisor action. Collectively, these changes shift the balance toward more equitable franchising relationships while reinforcing the importance of transparency and good faith conduct.

Given the scope and complexity of the reforms, early and tailored legal advice is critical. Samantha Cobcroft, Associate, together with the Watson Webb team, crn assist franchisors and franchisees in navigating the updated Code, managing risk, and resolving issues efficiently, ensuring franchising relationships remain commercially sustainable and legally compliant.