Many pharmacy business owners are interested in becoming franchisees in order for them to trade with the benefit of national brand recognition, marketing power and tried and tested operating systems.
However, it is crucial that pharmacists understand the content, substance and implications of the franchise documentation before they sign or make any non-refundable payment to the franchisor.
The Franchising Code of Conduct (Code) is legislated by the Competition and Consumer (Industry Codes – Franchising) Regulation 2014, and is an Australia wide code which regulates the conduct of franchising participants towards each other.
The party granting the franchise is known as the ‘franchisor’ and the party taking, or accepting, the franchise is known as the ‘franchisee’.
The Code requires franchisors to provide certain documentation and information before a franchisee signs or makes a non-refundable payment. These documents are:
- an Information Statement for prospective franchisees;
- a disclosure document – which sets out key up to date information about the franchisor and it’s network;
- the franchise agreement in final form; and
- a copy of the Code.
Pharmacy franchise agreements will differ according to which franchisor entity you approach.
It is possible that the franchise agreement will contain terms you may wish to negotiate, such as:
- any exclusive area or territory being granted to you
- any restraints on your ability to operate a pharmacy other than the proposed franchise
- any restrictions on your freedom to sell your business during the term of the franchise
- costs associated with the franchise and any transfer of the franchise agreement to a future buyer of your pharmacy business.
Pharmacists should also be aware that the Code contains an obligation for each party to a franchise agreement to act towards the other party with good faith in respect of any matter arising under or in relation to the franchise agreement and the Code.
The obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement in respect of:
- any dealing or dispute relating to the proposed agreement
- the negotiation of the proposed agreement
- the Code.
Civil penalties may apply to any breach of the duty to act in good faith, and in deciding whether a party has acted in good faith a court may have regard to:
- whether the party acted honestly and not arbitrarily
- whether the party cooperated to achieve the purpose of the agreement.
The obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become a party, from acting in his, her or its legitimate interests.
We recommend that pharmacists seek advice in relation to the content of pharmacy franchise agreements before signing or making any non-refundable payment. Please contact Mark Fitzgerald (Melbourne) on 03 9810 6767 or Georgina Odell (Sydney) 02 9018 9975 for further assistance.