In January 2015 Australia’s new Franchising Code of Conduct took effect. It contains regulations by which all franchisors in the country must abide. To be clear, there already is a Franchising Code of Conduct, but these are amendments to it. Among the changes is an expressed obligation on parties to a franchise agreement to act in good faith in their dealings with one another, or in relation to the franchise agreement, or the Code. That may seem like a “no brainer” for most people, but putting it in writing changes things, depending on the Code and the country.
United States of America
In the United States there are federal laws governing franchising as well as state laws governing franchising. These laws are not uniform and they vary from state to state. In the United States, the duty of good faith and fair dealing is implied. There is no written regulation on good faith practices in federal franchising regulations. However, there is a written regulation on good faith practices in franchising in seven states. They are:
Arkansas, Hawaii, Iowa, Minnesota, Nebraska, New Jersey and Washington.
Similar to the United States, Canadian franchising laws and regulations can vary from province to province. But unlike in the United States, in certain Canadian provinces, the duty of good faith and fair dealing is expressly codified in franchise legislation. What exactly is good faith is still subjective, but a court will decide. The rule sets more of a guideline for a court to determine if the standards of good faith apply and to whom.
As mentioned, Australia will be the newest country to add this kind of regulation to its books. This regulation, to take effect in 2015, will apply to all franchisors and franchisees in the country. It also states that a party may be liable for a civil penalty if it breaches this obligation.
By definition good faith means honesty or sincerity of intention. It’s not tangible or even quantifiable, which may be the reason why it is not a set rule in some franchising laws. But that doesn’t mean it can be ignored.
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