Are The Laws Around Franchises Complicated?
On TV, lawyers like Rake wear wigs and gowns to make clever arguments. American depictions have more flash, with dramatic yells of ‘objection you honour!’ and teeny tiny power suit bottoms. Corporate law is a lot more mundane in real life. There isn’t nearly as much shouting and gavel banging. It’s reading briefs, combing through documents, confirming contracts, and making sure your client gets the most profitable deal. This ensures your slice of the cake is healthier.
The concept of franchising doesn’t seem that complicated. You take a well-known brand, open a local branch, get support from headquarters, and give them a share of your cut. And yet there are laws governing the process. And if you’ve ever tried reading your rental lease, car loan documents, or even the terms and conditions on any online account (which nobody ever does), then you know what lawyers are for. And this is just the routine stuff, before you ever experience franchise disputes.
The franchise model is quite popular in Australia, both from Old Mother England and other global entities. Most franchises run as incorporated organisations that legally require at least one Australian director. It’s easy to set up, and can take as little as two days. The incorporation must follow the statutes on the Corporation Act of 2001, largely implemented by ASIC (Australia Securities and Investments Commission). Your franchise will need a TFN (tax file number) and ABN (Australia business number).
Statutes And Measures
You also have to register for GST (goods and services tax). If your franchise will receive foreign funds above AUD 231 Million (the official cap for non-American investors in 2010), you’ll need approval from the FIRB (Foreign Investment Review Board). The US has no caps, because of our free trade agreement with them. Franchises pay the same taxes as everyone else – income tax, payroll, state tax, workers’ comp, and stamp duty. They may also pay a 5% withholding tax on the funds they send back to their overseas brand headquarters (royalties and commissions).
Local income tax is 30%, so franchisees should clarify double-tax regimes and treaties with their lawyers. Lawyers also need to look into franchisee rights for your staff. For example, are they employed by their local Aussie boss or by the franchisor – whether it’s a local brand or an international one? In the latter case, are their (minimum) wages and hours governed by Australia or the franchisor’s ‘home country’? What about employee insurance and workplace safety standards? These may seem like straightforward matters for a franchisee, the kind of thing that’s agreed verbally.
Sifting Through Agreements
However, a lawyer needs to look through the agreements and see whether there are any clauses or loopholes regarding this. Issues don’t come up when things are fine, but the second someone gets fired and feels aggrieved, you’d be surprised what sneaky franchise terms they can find to sue you. You might also have to register patents and trademarks with IP Australia to avoid others unlawfully cutting into the exclusivity of your franchise. Some franchise agreements include a business premises which will be leased by the franchisor.
At the top level, the laws that govern buying or selling a franchise fall under the Franchising Code of Conduct i.e. the Trade Practices (Industry Codes – Franchising) Regulations 1998. It used to be called the Trade Practices Act but was renamed the Competition and Consumer Act, and it’s enforced by ACCC (Australia Competition and Consumer Commission). The ACCC is in charge of investigating and prosecuting non-compliance. They’re especially concerned with disclosure documents, which have to be reviewed and updated every year.
Altered Agreements
The document has information on litigation, payment terms, sites, territories intellectual property, obligations, earnings, terms of franchise closure, and a copy of the franchise agreement itself. After the end of the financial year, the franchisor must update the Disclosure Documents within four months and submit a fresh copy to ACCC for a compliance check. If there are any changes, the franchisor legally has 14 days to inform the franchisee. The franchisee can also request an updated document once a year.
Franchises have to abide by municipal laws in the region they are located. They may have to follow industry codes as well. If a franchisee feels wronged by the franchisor, they can seek assistance from ACCC under the Franchising Code. The FCA (Franchising Council of Australia) also issues conduct requirements for its members. There’s whole other network of laws governing when a franchisor or franchisee can exit the agreement and how, but as you can see franchise law is definitely complex. So before you sign on any dotted line, talk to a good franchise lawyer and let them walk you through what could either be a profitable venture or a messy legal nightmare.
