How does the imminent updated Franchising Code of Conduct affect automotive franchisors?

The automotive industry is no stranger to regulatory changes, but the revised Franchising Code of Conduct (“the Code”), set to take effect on 1 April 2025, presents one of the most significant shifts in recent years. For automotive OEMs, distributors, and dealer groups, compliance with the new Code is not just a legal necessity but a strategic imperative. Dismissing the changes as simply extending automotive-specific provisions to the broader franchise sector understates their significance and could result in financial penalties, reputational damage, and heightened scrutiny from regulators and franchisees alike.

One of the most impactful changes is the introduction of an obligation to maintain separate accounts for any type of “specific purpose fund”. Where a franchise agreement requires a franchisee to make payments for a specific common purpose related to the operation of the franchise business, those funds must be held in a separate specific purpose fund. Previously referred to as a “marketing fund” (for advertising or marketing) or a “cooperative fund” (for purposes such as information technology or a conference fund), the new definition applies more broadly to any payments collected which are pooled together from franchisees for the operation of the franchise business.

Several further changes will impact the operation of sending out Disclosure Documents and Dealer Agreements, including:

• Removal of the Key Facts Sheet requirement.
• Franchisees who recently had the same or substantially the same franchise agreement for a business that is the same or substantially the same as their current business with the franchisor may, on written notice, opt out of receiving a disclosure document and a copy of the Code.
• A prospective franchisee or purchaser of a franchised business may also opt out of their cooling-off rights if they already have or recently had another franchised business with the franchisor. While this may appear to simplify the disclosure process, in practice, it is rare for franchisees to enter into the same or substantially the same franchise agreement they already have with the franchisor.
• Franchisors will now be prohibited from sharing a former franchisee’s personal information (such as their name, contact details, or financial details) with a prospective franchisee unless the franchisor complies with the new procedure set out in the Code.

Whilst it has always been advised that franchisors do not execute dealer agreements during the initial 14 disclosure period (now referred to as the Consideration Period), the Code now carries an express prohibition and carries a civil penalty in the event that a franchisor executes an agreement during this period. 

Termination rights of a franchisor have now been expanded to give rights to the franchisor to terminate on 7 days notice for certain grounds for which the franchisee may or may not notify a dispute.

The circumstances in which the which franchisee may not notify of a dispute under the Code, include some of the termination rights under the previous Code (such as becoming bankrupt, loss of licence) but has been expanded to capture further grounds that relate to contraventions of the Migration Act 1958 and Fair Work 2009.  Additionally, the circumstances in which the franchisor may terminate on 7 days of notice, and for which a franchisee may notify a dispute, have been expanded to include voluntary abandonment, operating the business in a way that endangers public health and safety, and fraudulent operations of the franchised business.  Importantly, in order to terminate on those grounds, the franchise agreement must include relevant provisions giving the franchisor the power to terminate on those grounds.

Additionally, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is now empowered to publicly name and shame franchisors who refuse to engage in dispute resolution processes. This increases reputational risk for non-compliant franchisors.

What Automotive Franchisors Must Do Now

The updated Code necessitates immediate action to avoid financial, legal, and reputational consequences. With compliance deadlines looming, now is the time for the industry to engage, adapt and ensure that franchise operations remain both commercially viable and legally compliant in this evolving regulatory landscape.

The majority of the new provisions apply to any franchise agreements entered into, transferred, renewed, or extended on or after 1 April 2025. Some provisions have a grace period until 1 November 2025, but these exceptions are limited.

Given the two compliance deadlines, franchisors ought to update their franchise agreements and disclosure documents twice in 2025:

• First by 1 April 2025, to meet the primary compliance requirements.
• Again by 1 November 2025, for provisions relating to capital expenditure and compensation for early termination.

Failing to address these changes in a timely and strategic manner could lead to penalties, disputes, and operational disruptions. Now is the time for automotive franchisors to take proactive steps to ensure compliance and safeguard their network’s future success.