How Do You Know You Are in a Franchise Relationship?
If you are operating a business under someone else’s brand or selling their products, you may be wondering: Am I a franchisee or just a distributor? The answer is crucial because franchises in Australia are regulated under the Franchising Code of Conduct, which provides legal protections and obligations that do not apply to standard distribution agreements.
From a franchisee’s perspective, understanding the difference can impact your rights, responsibilities, and financial commitments.
What Defines a Franchise Relationship?
A business arrangement is considered a franchise in Australia if these three key elements are present:
1.Use of an Established Brand – As a franchisee, you operate under the franchisor’s trademark, name, or brand identity. This means customers associate your business with the franchisor’s brand, not your own.
2.Significant Control or Assistance – The franchisor provides rules and guidelines about how you run your business. This could include pricing, supplier restrictions, marketing requirements, or operational procedures.
3.Payment to the Franchisor – You must pay fees to the franchisor, such as an upfront franchise fee, ongoing royalties, marketing levies, or other required contributions.
If these elements exist, then you are likely in a franchise relationship, meaning the Franchising Code of Conduct applies. This grants you legal rights, such as access to disclosure documents, a cooling-off period, and dispute resolution mechanisms.
How Does This Differ from a Distribution Arrangement?
A distribution arrangement is different because you act as an independent business purchasing and reselling products, without the restrictions and obligations of a franchise. Key differences include:
•You Control Your Business – Unlike a franchisee, a distributor operates independently. You decide your pricing, marketing strategies, and how to run your business without the supplier’s control.
•No Franchise Fees – A distributor typically makes money by buying products at wholesale prices and selling at a markup. There are no royalties or ongoing payments to a brand owner.
•No Mandatory Branding – While you may sell another company’s products, you do not operate under their brand name, nor are you required to follow their specific business model.
Why It Matters for Franchisees
If you believe you are in a distribution arrangement but the franchisor is exerting significant control, branding requirements, and fee structures, your agreement may actually be a franchise—even if it is not called one. This could mean you are entitled to the protections of the Franchising Code.