The Information Statement for Prospective Franchisees has recently been updated by the Treasury, and contains updated information about the Franchise Disclosure Register. Franchisors must give the updated version of this Information Statement to any potential franchisees. This is a Franchising Code rule and penalties are available if it is not followed (up to $165,000, 600 penalty units).
Please be aware that franchisors must give the Information Statement to anybody interested in becoming a franchisee:
- No later than 7 days after interest is expressed; and
- Before giving them any other documents (e.g. a disclosure document or franchise agreement).
Also, it’s important franchisors are on top of changes to cooling off rights for franchisees under the Franchising Code. You may be aware the Code has changed so franchisees now have 14 days cooling off (instead of 7 days) but did you know the Code no longer says that the cooling off rights must be exercised within 14 days of signing the franchise agreement or paying money (whichever is earlier). Now it simply says that franchisees can cancel their contract within 14 days of signing it.
Although this may not seem like a big deal. It could be if you are still telling prospective franchisees their right to change their mind can only be exercised in accordance with the Old Code requirements.
You might have heard that Jim’s Group got fined by the Australian Competition and Consumer Commission. One of the fines was because Jim’s Group allegedly told a Jim’s Dog Wash franchisee that they could only cancel their contract within 14 days of signing it or paying money to Jim’s Group, whichever came first. This is not true. The Franchising Code of Conduct changed on 1 July 2021, and now it says that franchisees can cancel their contract within 14 days of signing it, even if they paid money before that. This is called the cooling off period, and it gives franchisees a chance to change their mind if they are not happy with the deal.
The ACCC is the Australian Competition and Consumer Commission, and they are in charge of making sure that franchisors follow the rules and don’t mislead or deceive franchisees. They issued two infringement notices to Jim’s Group, which means that they had to pay a penalty of $24,420. The other fine was for alleged insufficient disclosure regarding former franchisees and contact numbers.
The ACCC said that Jim’s Group may have discouraged Jim’s Dog Wash franchisees from using their cooling off rights where they paid a deposit some time before they entered into the franchise agreement.
So, what does this mean for franchisors? Well, it means you should update your franchise sales processes, so your team is aware and are saying the right things to prospective franchisees about their cooling off rights. It also highlights the importance of staying alert to changes to the Franchising Code of Conduct -because it can affect your contract and dealings with franchisees.
