2025 was a year of substantial change for franchising, with notable additions to the Franchising Code of Conduct and helpful clarifications of the obligations and liability of franchisors and franchisees by the courts.
This article looks back at the year that was to highlight the key takeaways for franchisors and franchisees.
Franchising Code of Conduct
2025 saw the implementation of a revised Franchising Code of Conduct (Code) that applies to franchise agreements executed, assigned, renewed or extended on or after 1 April 2025, with some provisions starting in November 2025.
The new Code makes significant changes to the old regime that franchisees and franchisors ought to be aware of.
Restraint of Trade
Section 42 of the Code places a prohibition on franchisors from enforcing post-termination restraint of trade clauses - being a clause that restricts a party’s commercial activity - in instances where a franchisor rejects a franchisee’s attempt to exercise an option to renew or extend a franchise agreement with no or only nominal compensation.
Breach of section 42 results in a maximum civil penalty of 600 penalty units (currently $198,000.00).
As such, franchisors should check whether any franchise agreements entered into on or after 1 April 2025 are in breach of this provision.
Disclosure of Significant Capital Expenditure
Section 20(4) of the Code imposes a new obligation on franchisors to include in their disclosure statements to prospective franchisees any substantial capital expenditure that will be required by the franchisee during the term of the franchise agreement.
Section 47 imposes a maximum civil penalty of 600 penalty units for each failure to disclose the expected expenditure. Additionally, this section obliges franchisors to discuss with franchisees the circumstances under which they are likely to recoup their expenditure.
Further changes also came into effect with respect to disclosure documents, including obligations for the disclosure of certain details of past franchisees and any potential competition from businesses not associated with the franchisor in a particular territory.
Compensation for early termination
Under section 43(2) of the Code, a franchisor must not enter into a franchise agreement unless it provides for the franchisee to be compensated on early termination because the franchisor either withdraws from the Australian market, rationalises its networks or changes its distribution models in Australia (Termination Grounds).
Additionally, section 43(2)(b) imposes an obligation that the franchise agreement must specify how the compensation for early termination is to be determined, with reference to lost profit, unamortised capital expenditure, loss of opportunity in selling and costs of winding up the franchised business.
Section 43(3) and (4) prescribe a further prohibition on franchisors entering franchise agreements unless the agreement requires the franchisor to buy back or compensate the franchisee for certain items where the franchise agreement is terminated prior to its expiry date pursuant to one of the Termination Grounds.
Items covered by sections 43(3) and (4) that must be compensated include:
outstanding stock purchased by the franchisee that was specified by the franchisor and required in order to operate the franchise; and
essential specialty equipment, branded product or merchandise purchased by the franchisee that was specified by the franchisor and required to operate the franchise which cannot be repurposed for a similar business.
Notably, the new early termination provisions only apply to franchise agreements entered into, transferred, renewed or extended on or after 1 November 2025. Also containing a maximum civil penalty of 600 penalty units, franchisors should consider whether they need to update their franchise agreements to comply with the provisions of section 43.
Reasonable Opportunity for Return on Investment
Section 44 of the Code prohibits franchisors from entering franchise agreements unless the agreement provides the franchisee a reasonable opportunity to make a return on any investment required by the franchisor, with the return itself materialising during the term of the agreement.
This section again applies a civil penalty of 600 penalty units.
Grounds for Franchisor Termination
Section 57 of the Code empowers termination by franchisors on 7 days’ notice for an expanded list of grounds, now including instances where a court finds the franchisee to have committed a serious contravention of a Fair Work civil remedy provision and certain breaches of the Migration Act 1958 (Cth).
Where a franchise agreement is terminated under section 57 the rights of franchisees to expedited dispute resolution in the courts are significantly restrained.
Specific Purpose Funds
The new Code introduces specific purpose funds, being funds that are controlled and administered by the franchisor, to which a franchisee must contribute under the franchise agreement, and which must only be used for a specified purpose relating to the operation of the franchise.
The Code also extends existing obligations relating to marketing funds to specific purpose funds, including that franchisors must distribute an annual financial statement for the fund and must hold monies collected for each specific purpose fund in separate accounts.
Franchising in the Courts
2025 has also been a notable year for franchising disputes, with a range of cases providing important insight into the way that the courts regulate franchises.
Good Faith under the Code
In March, the Victorian Supreme Court handed down its decision in Beecham Motors Pty Ltd v General Motors Holden Australia NSC Pty Ltd [2025] VSC 125, providing important clarification on the scope of the good faith obligations under section 1 of the Code.
The case, which involved the departure of Holden from the Australian market by the General Motors Company, saw claims of breach of contract and breach of good faith requirements due to Holden’s failure to supply vehicles for the full duration of its franchise agreement with Beecham Motors.
While the case, which we wrote a full article on here, provides crucial guidance on contract drafting and the implication of terms, it is also notable for its narrow interpretation of the good faith obligations under section 18 of the Code.
The Court held that a good faith claim cannot stand independently where it is brought alongside a claim for breach of contract. In this instance the court dismissed the claim for breach of contract and in doing so, the good faith claim failed with it.
Enforcement of Disclosure Obligations
Also in March, the Federal Government allocated an additional $7.1 million in funding for the ACCC over two years with the goal of strengthening enforcement of the Code.
By mid-2025, the impacts of this funding were seen with the ACCC issuing infringement notices of $16,500 to Cash Converters Pty Ltd, Mobile Travel Agents Pty Ltd and HN Macgregor Franchisor Pty Ltd (a Harvey Norman franchisor) for failing to comply with section 92 of the Code’s disclosure requirements. The disclosure requirements require franchisors to provide and annually update certain information on the Franchise Disclosure Register.
This enforcement action, which we wrote about in depth here is only likely to continue, highlighting the need for franchisors to keep across their obligations under the Code.
Misleading or Deceptive Conduct in Franchise Renewal
The Victorian Supreme Court’s April decision in Sec New Line Pty Ltd & Anor v Muffin Break Pty Ltd [2025] VSC 183 provided important clarification on the limited duties of franchisors to inform franchisees about issues regarding their lease, particularly in the context of franchise renewal negotiations.
While negotiating a renewal of their franchise agreement, Muffin Break Pty Ltd withheld information from their franchisee, Sec New Line Pty Ltd that the landlord intended not to renew their lease. Although the franchisee relocation would cost between $220,000.00 and $270,000.00, the court held that withholding the landlord’s intention was not misleading on the basis that silence on an offer to renew a lease could not reasonably cause one to form the impression that the landlord intended to renew the lease.
You can read more about this decision and its key takeaways for franchisees and franchisors here.
Franchisor Liability for Franchisee Workplace Contraventions
The need for franchisors to take remedial action against workplace contraventions by franchisees was highlighted by the Full Court of the Federal Court of Australia in Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144.
The Court held that Bakers Delight could be held liable for underpayments of employees by its franchisee given that it was made aware of the misconduct through its own audits but took no remedial action against the franchisee.
You can read more about this decision in this article that we wrote November.
Please contact Alicia Hill if you would like to discuss further.
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
This article was originally published on the Sladen Legal website: Franchising Update: 2025 in Review
