When internal discussions have not resolved a disagreement, the Franchising Code of Conduct provides a structured dispute resolution framework designed to offer franchisors and franchisees a fair, accessible, and cost-effective pathway to resolution, without necessarily going to court.
The process begins with a formal notice of dispute. Under section 72 of the Code, the party raising the dispute must provide written notice setting out the nature of the dispute, the outcome they want, and the action they believe will resolve it. Once the notice is issued, both parties are required to negotiate in good faith to try to reach a resolution.
If the dispute remains unresolved after 21 days, either party may refer the matter to alternative dispute resolution (ADR), meaning mediation or conciliation. The parties may agree on an ADR practitioner, or either party can ask the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to appoint one. The ASBFEO maintains a specialist panel of accredited practitioners across each state and territory and must make an appointment within 14 days of receiving the request. Once an ADR process is requested, attendance becomes mandatory for both parties, and both must genuinely try to resolve the dispute in good faith.
A significant change under the new Code is the ASBFEO’s expanded “name and shame” power. Under section 78, the ASBFEO may now publicly name franchisors who refuse to engage in, or withdraw from, ADR processes. This is intended to encourage meaningful participation and carries real reputational consequences for franchisors who do not cooperate.
It is important to understand what the dispute resolution framework does not do. The ACCC does not resolve individual franchise disputes and does not act on behalf of franchisees or franchisors. Similarly, the ASBFEO facilitates access to ADR services but does not make binding decisions. If ADR is unsuccessful, parties retain the right to pursue arbitration (by written agreement of both parties) or litigation.
Costs are typically shared equally between the parties unless otherwise agreed. Each party bears their own costs of attending. Importantly, under the Code, franchisors cannot pass their legal costs of settling a dispute on to franchisees.
Practical Takeaways
- Follow the process. The Code requires a written notice of dispute followed by good faith negotiation before ADR can be accessed. Skipping steps can undermine your position.
- Mediation works and it is affordable. ADR is significantly less expensive and less time-consuming than court proceedings, and the ASBFEO can help you access a qualified practitioner quickly.
- Franchisors, take ADR seriously. Refusing to participate can result in the ASBFEO publicly naming your franchise system, which carries significant reputational risk.
Navigating the Code’s dispute resolution process can be complex, and missteps can significantly weaken your position. Whether you are issuing a notice of dispute, preparing for mediation, or considering your options if ADR has been unsuccessful, the Franchising Team at Hitch has the expertise to guide you through every stage. Contact us to discuss your situation.