Digital Signature Legality for Franchise Contract in Australia

How to eSign a document: digital signature legality for Franchise Contract in Australia

welcome everyone to our webinar on understanding your franchise compliance obligations my name is Analise Katan and I'm a senior lawyer in legal Visions franchising team and today I'm joined by Olivia laio she's another lawyer in our franchising team here before we get into it a couple of quick housekeeping items you'll receive a copy of this recording and the slide after the webinar in your email throughout if you have any questions please feel free to put them in the chat box and we'll get to them at the end and otherwise on the completion of the webinar um you'll be sent a survey if you could complete that for feedback that would be great as an attendee you'll also receive a free consultation with us uh you can discuss how we can help you with any of your franchising needs um any general legal needs as well um so if you pop your contact details in that survey I will'll get in touch in relation to that free consultation so today we'll be going through a few things at the start we'll going through your annual obligations as a franchise or general overview of these we'll go through the unfair contract term laws and what you should be aware of as a franchise or as well as considerations for renewing franchise agreements particularly in light of some legal changes General Obligations for new and existing franchises as well as some other areas of law we've seen popping up that may affect your as of franchise or such as privacy and ppsa law uh I now pass over to Olivia and she'll take us through some of those annual disclosure requirements franchise ORS with a Disclosure document are subject to annual disclosure obligations as required under Clause 86 of the franchising code of conduct the code requires franchise LA to update their Disclosure document and key fact sheet regarding any changes to the franchise Network within four months of the end of each Financial year in other words by 31st of October both your disclosure document and key fact sheet must be updated every year to ensure it reflects the full franchise system and a failure to update your disclosure document in key fact sheet may result in civil penalties there add there are additional annual disclosure obligations for franchisors that operate a marketing fund a marketing fund is a pool of money that each franchisees and in some cases the franchise or its associates all contribute to in order to pay for marketing and advertising efforts done on behalf of the franchise network if you operate a marketing fund you must buy no later than three months after the end of the financial year provide an annual financial statement detailing all of the funds expenses the statement must include sufficient detail in regards to the income received by the fund and the expenditure of the the fund as well as an audit of the financial statement by a registered company auditor once you have your financial statement and audit you must provide all franchisees who contribute to the fund with a copy of the financial statements and the audit within 30 days of preparing the documents there is however an exception to the audit you don't need to provide the audited financial statement in respect of the marketing fund if 75% of the franchisees who contribute to the marketing fund have voted and agreed the marketing fund financial statements uh must provide a clear breakdown to franchisees as to exactly where money is being spent it is not enough to include broad catch all categories in the expenditure Associated for example if you spend money on AdWords it is not sufficient to Simply State AdWords you should for example provide details of which AdWords were purchased who the intended audiences was and for what territories ultimately a franchise should easily be able to view the financial statement and have a clear idea as the exact marketing functions that have occurred in the previous Financial year a failure to comply with your marketing fund requirements may also result in civil penalties depending on the information you fail to disclose to franchisees your failure to comply may also be considered misleading and deceptive conduct which may result in further financial detriment to you including compensation in the form of damage under the ACL and or giving the franchisees rights to terminate the agreement in limited circumstances there are certain Financial disclosure obligations required by the franchise or to undertake and provide to their franchisees every Financial year a director of a franchise or must provide a written statement that the company is solvent I.E able to pay its debts when due and either obtain an independent audit report and sign a statutory declaration please not that this is required if the company has been operating for under two years and if the company has been operating for over two years this is optional on the other hand the director May opt to attach copies of the financial statements for the previous two Financial years your entire Disclosure document must be reviewed and updated however particular information to be aware of is the number of franchisees and corporate owned franchise uh businesses updating the franchisees contact details event of franchise agreements endings such as the businesses brought back by the by the franchise or and those that cease to operate all estimated costs and fees in the operation of a franchise business ranging from establishment costs to recurring costs any current proceedings or litigation involving the franchise or any Associates details of any Associates for example corporate owned stores supplier companies or IP holding companies any changes to IP ownership for example the the registering of new trademarks any new arrangements for payments to recruiters or agents and any additional details of rebates or financial benefits obtained by the franchise or and franchises I will now you know in addition to those annual obligations which fall under the code there's quite a bit of consumer law that will apply to you as a franchise or one of the terms that's you've probably heard is unfair contract terms they've been thrown around a bit lately where new leg legislation has come into force and it is effective now um basically unfair contract terms laws apply to any standard form contract what that means practically is really an agreement that you set the terms for and you don't allow too much variation of and if one party to that contract is a small business the definition of small business is quite large now and I can't imagine many franchisees would not be deemed a small business um so you would likely be looking at all of your franchise agreements possibly some of your licensed occupies or any other ancillary documents falling in what's called a standard form contract so therefore these unfair contract term laws are going to apply to you you might be asking why you should really care the the biggest change that we've seen come in and why people are talking about them is the penalty has now been increased so the maximum penalty for having an unfair contract term in any of your contracts that fall in standard form is now $50 million you know we obviously haven't seen this in practice so we can't comment as to what the courts are likely to actually enforce but it's definitely something we're recommending all franchise ORS have any standard form contracts reviewed in light of these laws to make sure anything that may be on the fence or a bit of a gray area is watered down or removed um to try to avoid being deemed an unfair contract term the kind of definition of what an unfair contract term is can also be quite ambiguous the A C provides guidance and there has been quite significant case law specifically last year the Phillips case but as a general rule really it's if a term is advantageous to one party um gives a significant advantage to you as the franchise or and is it necessary to really pro pro protect a legitimate interest and it would cause harm to the other party in the context of franchising this may happen with extremely broad indemnities say if you're indemnifying the franchise is indemnifying you for basically anything and there's not a reciprocal Indemnity in there it can also occur in the context of referring to documents that aren't provided to the franchisee where they're signing so most typically a manual or an operation manual may be referred to in your franchise agreement you might not be giving that to the franchisee when they sign up and that's likely to be deemed an unfair contract term if you're trying to have them Bound by that document that they haven't seen when signing the laws as I've said are currently in place and so they do apply to any contracts that you may enter into now so from it was 9 November so any franchise agreements or other standard form contracts you into renew or vary will be affected um so in addition to those financial penalties you may receive there are quite broad um obligations now on the A C they have a lot of Rights they can for example just deem these unfair contract terms un enforceable and have them struck out of all of your agreements so that's another thing to keep in mind as well I'm definitely starting to be aware of where it does apply to renewals as as well I will pass over to Olivia to go through some other things you should be aware of in renewing your franchise agreements this year after you've conducted your annual update of your disclosure document in key fact sheet remember that you also need to update the franchise disclosure register if you haven't done so yet you must create a franchise profile on the franchise disclosure register with your myv ID and you must obtain authorization to act on behalf of the ab n of the franchise or for interactions with the Department of Treasury as a franchise or you may choose to upload uh your disclosure document key fact sheet and franchise agreement to the register but if you choose to do so ensure you redact all personal information commercially sensitive information or information that relates to a particular franchise for franchisees that are operating their business on a three-year term and have entered into their agreements in 2021 they are likely to be up for Renewal next year if so as per the franchising code 2021 updates franchisors are unable to charge further legal costs upon entry into the uh franchise agreements on or after 1 July 2021 the only fee that is applicable to be charged by a franchisor is a renewal fee if you have one under the franchising code franchise LA are subject to other non-annual disclosure update obligations these include remaining in good faith in all dealings with prospective and current franchisees providing the information statement within seven days of receiving expression of interest from a franchisee providing a most upto-date copy of the code the disclosure period from the provision of ready to execute documents to a pro prospective franchisee has extended to 14 day day days and not 7even days any deposits must be refundable until the 14-day calling off period uh until the 14-day calling off period expires which is the period after the franchise documents have been executed for the franchisee to exit the arrangement any breaches terminations and dispute resolution processes must be managed in ance with the terms of the franchise agreement as well as the code and if the franchise or or an associate of the franchise or is the lesie on a lease for a premises based franchise updated lease documents must be provided to the franchisee as part of negotiations for Renewal terms that kind moving on to some other obligations you know there are a lot under the code um and obviously we we've touched on the surface here in the ones we've seen most another big area we're seeing across all law is privacy and these privacy issues I'm sure we're all familiar with kind of the op data breaches and how this has affected them and their brand as a franchise or you do need to be aware of these obligations as well so all privacy obligations are really governed by the Privacy Act it only applies to what's named AP entities all you really need to know is you'll be deemed an AP entity if you have a annual turnover of over $3 million or if you collect certain types of information so if you operate in the healthare sector and you're collecting sensitive information you will be deemed um a relevant entity if you're Contracting work through the government you'll also be deemed to relev an entity in general even if you don't fall in this bracket Our advice is always to comply with the Privacy Act regardless voluntarily particularly where I think the general vibe in the community's customers expect to have their private information dealt with in a certain manner and they will start to ask questions about these issues now as a franchise or then we do advise that you have a privacy policy in place so a privacy policy on your website or wherever else you are collecting information from third parties that includes recruiting franchisees um customers those kind of things you should also have a collection notice just setting out how you're collecting that information as well those kind of the the external policies you should put out there really as a protection inhouse and to mitigate ongoing risks we recommend that you put in place a data management process and and governing policies that set out how you're going to respond if there is a data breach whilst if you're non a entity you're not as strictly regulated as to how you respond um there are certain processes they suggest um so it's definitely worthwhile having that in place if something were to occur you already know what to do you're not trying to call someone at the 11th hour and workout how do we respond to this we think our client information has gone missing or been d another really important topic is providing training to your franchisees in relation specifically to privacy we would suggest this is done with the onboarding process and even in your ongoing conferences and meetings just providing the updates as you receive them from your lawyers or as you become aware of them so they're receiving the same information as you and you know they're not unknowingly breaching these laws and causing possible brand detriment as I'm sure we've all seen privacy breaches don't really result in good results for the company that's subject to them we also recommend that a lawyer reviews all of your privacy policies and anything you have internally to make sure that they are legally compliant and we would justess franchisees have their own privacy policy whether that's something you have some oversight of or or not may depend on a Case by casee basis and how sensitive the information they're collecting is another interesting area um that we see come up with our franchise or clients is in relation to security interests so what we what is known as the personal properties Security Act at a high level what that act does is develop a set of rules that sets out basically the enforcement um in priority of security interest and it creates a national register being the personal property security register or ppsr because that's quite am mountable you might be asking what is the security interest and why does this even matter to me a security interest secures an interest in in personal property for a debt now why we are seeing this come up a bit in franchising is often franchisors particularly in Hospitality spaces but really in all spaces often Supply Goods to their franchises in that Supply relationship they often is a situation of money owing to the supplier or vice versa and you may want to register what's called a security interest what that means is you would have an interest in certain personal property of that franchisee so if they default on debt it's almost a a mitigation tactic so you have something to call back and hopefully you know not be out of pocket if franchises do have overdue bills it likely will apply as well if you are loaning money to franchisees um so if you are loaning you know part of the upfront fee whatever you like to call it to franchisees you may want to look at a security interest over certain personal property to secure that debt it's not a requirement under in under franchising law by any means it's definitely just something we recommend if if you are having that kind of relationship with the franchises where you're loaning them money on an ongoing basis for certain items it's definitely worthwhile exploring if you should be securing those debts or not if it is something you're looking at going down we definitely advise speaking to a lawyer getting their involvement you generally need um certain documents at a high level uh security deed basically setting out the security that you're having a secured interest in and if there's money being loaned a loan agreement as well in the context of supplying Goods this may take the form of a supply agreement but again it just varies on a Case by casee basis if this is something that you're thinking about it is really important to get some advice because there are certain strict rules around registering security interest as well so if you have debt there and you're thinking this would be really good for me to explore it's important that you do what's called perfe in a security interest um which generally is just registering it on that security register um I went through earlier the ppsr if you're asking for more information definitely reach out and we also have a few other webinars that relate to the ppsa and the ppsr that going into a bit more of the nitty-gritty of what a security interest is and securing um those debts and how that can be beneficial for you I'll now go through go over to live to go through some general tips and summarize what we've been through today we always recommend having non-disclosure agreements and confidentiality Deeds signed by the prospective franchisees before handing over any private or business sensitive information about the franchise Network this ensures that the information remains confidential even if the prospective franchisee decides not to purchase and operate a franchise business it's also crucial to conduct thorough due diligence to ensure that the potential franchisee is a good fit for the brand and capable of operating a successful franchise this may include a financial background check assessing the prospective franchisees business experience and skills relevant to the industry as well as their management experience a legal background check to ensure that they're not involved in any litigation that could affect their ability to operate the franchise reference checks to gather insights into their character work ethic and business Acumen evaluating the prospective franchisees willingness and ability to participate in training programs provided by you and lastly ensuring that the prospective franchisee fully understands that is willing to comply with the franchising code and the terms and conditions outlined in the franchise agreement well that now today concludes the main part of our webinar as I said if you have any questions that have Arisen throughout that please just um put them in the chat box and we can get to them in a minute otherwise you might find our franchise or handbook useful you can download this in the handout panel of the webinar you can scan the QR code that's on the screen currently feel free to download that we also have an upcoming event that may be of interest to you U preventing wage on payment in your business it's going to be held on Tuesday 5 December you can register at the link on the slide as a franchise or there are certain employment obligations as well it's definitely something exploring if you're not aware of wage under payment or or tactics to try to prevent that we we will answer all those questions in a minute um but until then we'll talk about you know how we can help you legal Vision if you're interested and our membership model as a legal Vision member you will have predictable legal fees so that you can manage your cash flow and be proactive without seeking legal advice for your business for a fixed monthly fee you not only receive cost certainty but all inclusive benefits such as unlimited 30 minute calls with our lawyers in all of our practice areas such as franchising Leasing and business structuring with written summaries of key recommendations unlimited Drafting and review of legal documents encountered in your businesses usual including all franchising related documents such as a franchise agreement disclosure document including the annual update key fact sheet breach notices termination notices all lease related documents and licenses and any other business as usual documents that affect your franchise Network unlimited Australian trademark applications excluding the government fees unlimited employment and workplace support including drafting of contracts into internal policies and ongoing support and access to our prism portal where you can viw resources templates and view your projects and requests in one place options to purchase extra credit towards complex matters and ongoing disputes which are charged on an hourly rates basis members are also eligible to upgrade to our work health and safety advisory service which will help your business ensure it is meeting its health and safety obligations to learn more about how membership can help you request request a free consultation when the survey appears at the end of this webinar perfect so we've had a couple of questions come through the first one is what are the legal and financial requirements of franchising a business quite a few we've touched on a lot of those today um really to answer this as at a high level as a franchise or your subject to the franchising code of conduct which is that industry code and there's a whole heap of regulations onto that the ones Olivia spoke to earlier being your annual updates providing certain disclosure documents to your franchises and really just generally complying with the dispute processes that are set out within that code there are evidently some commercial that apply as well so the Australian competition and consumer act misleading and deceptive conduct is a big one we see come up so making sure you're not engaging in that kind of conduct as well financially um definitely something that's there's not necessarily a financial requirement per se beyond that disclosure that we've set out so you know having orders conducted and making sure you're solvent but something you can explore with your accountant and see if it's a feasible model for you there are evidently a breadth of other laws that may apply so definitely feel free to book in a consult if you want us to address a bit more holistically everything but they the main ones that that we always bring up first we've also had so do rules codes apply to master franchise ores when they have a master franchise in place yes they do so the definition of a franchise all under the code is quite all-encompassing so it's really just anyone who grants rights to a third party to use your IP um follow your systems and processes and Market in a certain manner or there's rules around marketing where that Master relationship is likely to fall into that all of these same codes will apply there's not a separate code for master um but the same code in Australia will apply unless of course you're looking at going overseas and that's something we can explore in more detail down the track where laws do vary based on the jurisdiction we had another question come in about whether a franchise or can hold a an a sum of money as a retention fee yes they can there are a few options that involved with the security retention amount um this is either taken at the start of the franchise relationship and uh refund it at a certain point or this is uh also can be taken uh later down the track as well and can be stored for the duration of the term um and refunded at the end a few options there and we be more than willing to discuss what that looks like on a Fran from a franchise all perspective we also had another question about uh provide when it was mentioned about providing an operations manual before signing and whether it needs to be provided to perspective franchises as part of the same Suite of documents that include the Disclosure document and franchise agreement the operations manual is actually not a legal document in nature as it contains the dues and dots of the actual you know goods or services that are being provided in the franchise Network whilst we can give general advice as to what we think from an outside legal perspective of what should be included it's really just about you know what's involved in the business what equipment's required who are the list the list of suppliers are and things like that so it can be provided at any time but really it should be provided as soon as the documents assigned because it's confidential information about uh the franchise Network so if it's going to be provided before uh any franchise documents are signed then at least a confidentiality agreement should be signed yes I think yeah to go into that more um definitely it's something that we were're seeing most of our franchise laws ask us about in light of the unfair contract term laws it should be provided before the frenchise agreement signed but definitely having an NDA signed before that just to avoid that now that being said just because that's our recommendation based on what we've seen doesn't mean you know you might take that risk we haven't seen how these laws are going to play out in court um but there isn't the requirement to provide it like disclosure period or anything like that where this is a kind of an obligation arising from common law not from the code necessarily and then we've had one about our membership actually so a brief idea of legal Vision membership pricing how does this work and differ from a traditional Law Firm pricing is really hard for us to go into we not um the pricing people we we do all the legal work and we have a very well versed team who can um discuss like pricing in the pre consultation really how it works and differs from other law firms is it's a set fee um that's build monthly and it's fixed at that so you're not looking at every time you have a question getting a new quote or paying an additional fee it's just that set fee you have access to for example myself and Olivia but also to for example really bespoke trademark advice on our corporate team who can assist with all of those wonderful ppsa obligations and are dealing with that every day so it's more about we provide that fixed cost certainty and you have that unlimited Lac access where you can book in calls with us we've also had a question just about the changes that came into place in 2021 um there was a bit of a code overhaul there for most franchise may have heard of that did you just want to go into that Olivia yep absolutely so 2021 saw significant updates to franchising code um that impacted most franchise ORS particularly if they had agreements that were entered into after the 1 of July as mentioned before about the information statement and key fact sheet some other things that are really important to remember is uh regards to dispute resolution Pro procedure so references to a change now from ation to Alternative dispute resolution and multiple franchisee parties are now able to agitate disputes concurrently where the disputes are similar but should be aware that this is also now an exception to confidentiality as franchisees have a legislative right uh to discuss the disputes with each other where this provision applies but these dispute resolution Provisions take effect for all disputes which arise from 2nd of June 2021 even if the franchise agreement was entered into prior to that date some other really important um updates that occurred to the franchising code of conduct in 2021 include uh termination rights so including you know specific to calling off periods which means that if a franchisees business is sold without a new franchise agreement being entered into the new franchisee May terminate within 14 days or when commencing to operate the franchise by written notice to the franchise orw and old franchisees uh there's also uh including special circumstances for termination so an early termination proposal as well where a franchisee May propose termination at any time but providing written notice setting out the reasons for the proposed termination as well as immediate termination so the prior grounds for immediate termination now have a 7day written notice for the proposed termination and the ground for it we had another one so can franchisors provide a profit guarantee to prospective franchisees look you certainly can as a franchiser there's just a few things to be aware of so where you are providing profit guarantees um it depends how that looks I've seen it take many forms say for example you're saying you're going to make this amount you need to look at realistically what is that figure based on is there any element of leading and deceptive conduct there you can't just kind of pick any figure that you want and say I think you're going to make this without having real reasoning and real evidence to back up that representation you're making if you're having it as a contractual obligation as well it may be worth exploring are you willing to top up um how much they're making to get to that profit guarantee amount it's often something that we would advise is the safer risk just where if you're telling them if you're telling a franchise you're going to make this much amount you should be really certain and confident that they will so definitely Pro being able to offer that top up is sometimes incentivizing and does you know mitigate some of that risk as a franchise or all of this is on a case-by casee basis so definitely worth understanding exactly your situation and the type of profit guarantee you're looking to offer where I've seen probably five or six different types and then approaching that in the best way it just it can be done there just are evidently some risks that we can explore um and we just on the back of that if the franchise offers a profit guarantee they do not honor what are the penalties it really depends on that situation if it's something you're disclosing in your disclosure document you're likely to have those civil penalties under the code for breaching the code which is about 188 per penalty currently then you're looking at penalties under misleading and deceptive conduct where you've if you mislead them into believing a certain amount they say I relied on this um there wasn't evidence for making that representation and those are the damages that can really blow out um but definitely something that's very dependent on a situation basis um but they're kind of the two areas of penalties you're most likely looking at at receiving we've had another question related relating to the code updates of 2021 um so what happens to my old franchisees that signed onto franchise agreements before the 2021 changes should I look into going back and amending those old franchise agreements would they need to go through another disclosure period or cooling off period if those franchisees have been entered into before the 2021 code updates it's fine to have their agreements as there are it's just as long as your template franchise agreement that you use for franchisees going forward has been updated as per the 2021 code updates which would involve then once those franchisees had entered into those agreements prior to the 2021 code updates if they're going to um enter into their renewal term or additional term if that's an option then they would then move on to the new the newer template then with the 2021 code updates and then it would follow process of another disclosure period and calling period which is process for any new agreement that's been entered into so as long as your template franchise agreement has been updated then there's not no need to make any changes to any prior agreements so another one if a franchiser agrees to deferred payments and wishes to take a guarantee and security are there any additional Financial laws that may apply it depends on the type of guarantee and security we're talking about so deferred payments if we're looking at security interest it's that personal property Securities act that I went through so if we're purely looking at deferred payments not loaning money that's the main piece of legislation and in most cases that is all that will apply if you're taking that security the if you're looking at kind of loaning money to franchisees then another set of calls May apply so that's if you're looking at kind of upfront saying I'm going to loan you the amount of the initial franchise fee or upfront fee or whatever you want to call it then you're looking at a whole breath of laws called um under AF so the stream Financial like commission um that have a whole breath of things where your credit possibly a credit um institution and you're governed by those laws there so we've had another question about um what should I know about misleading and deceptive conduct generally in the in a franchise system really you know I I know I mentioned it in the profit guarantee situation we do have a webinar specifically on this as well so I'll go through at a high level really it applies because of that Australian competition and consumer law it's set out in there that your no business is able to um engage in misleading and deceptive conduct or mislead or deceive someone else in the course of business or supplying kind of services you know that's obviously a bit of a mouthful what that really means in practice is you should not engage in conduct that is likely to actually mislead someone without having grounds to do it and I think that's the important part of misleading and deceptive conduct to understand as a franchise all it's not any representation you make or any comment you make it's just making sure that those comments or representations are founded in fact or a reasonable basis for that belief and generally you will be okay it's more so if you're making off the CL comments like I think this will be the best you know site in all of Australia and you're not you don't have any reason for saying that that's likely to be misleading compared to something founded in fact if you're looking at the past figures of a franchise in that site for example okay we've got time for one last question which we have here which is based on do you recommend having a premises criteria for any for any premises-based franchisees this is completely at the franchise Law's discretion they don't necessarily need to have a premises criteria um but if the franchise or does choose to they would normally include specific criteria include for example minimum maximum square meters uh local demographic factors or to be located in a shopping center Center or High Street there may also be industry specific circumstance uh prises criteria as well so like you know weightbearing flooring for Fitness franchises or access to gas outlets for f for food franchises and then at the same time without needing to put specific premises criteria you know the franchise or might decide to say that it cons considers you know whether a simar businesses previously operated from the site uh the the demographics of the territorial local marketing area any local competition the street as mentioned before and just any other factors that the franchise or considers relevant at that time of branting the franchise I think that's all we have time for today I'll just make sure that there's nothing else pressing that's come in um perfect so we that kind of ends today's webinar thank you all for asking those questions um and really engaging um it's always feels good after the webinar ends you will get a survey um as I said to pop up um fil please you know provide us feedback and we do encourage you to also put in those details if you're looking to take advantage of that free consult if you put those contact details in there will be T and can organize a consultation to discuss any specific you know your specific franchising needs and how we can assist you particularly in relation to franchise compliance thank you so much any people as well whose questions weren't answered during this time please do um reach out to us and um you know join us for a complimentary consultation so we can go into further detail about your questions that weren't answered perfect so just remember please put your contact details in in order to kind of exploit that so we can get in contact with you and otherwise thank you so much for joining us today I hope it was informative and look forward to hearing from some of you possibly