The ACCC is warning franchisors to urgently review and amend their standard form franchise agreements in order to avoid enforcement action after a review raised wide-ranging concerns over the terms found in franchising contracts.
A report released just before Christmas reveals the ACCC’s concerns and offers guidance to help franchisors ensure that they are compliant with the change in unfair contract terms laws under Australian Consumer Law (ACL) that came into effect from November 2023.
“We are concerned that franchisors are failing to grasp the importance of complying with the unfair contract terms provisions of the ACL,” ACCC Deputy Chair Mick Keogh said. “Every franchising agreement we reviewed contained potentially unfair contract terms.
“Franchisors are on notice that we will be watching, and those who fail to address the wide-ranging concerns we outline in our report are at risk of legal action by the ACCC and franchisees,” Keogh, who’s organisation has been concerned for a long time about the power imbalances between franchisees and franchisors, added. “The franchising relationship is often characterised by significant controls on franchisees. We are concerned this power imbalance is exacerbated when franchisors include or rely on unfair contract terms in their franchise agreements.”
Pointing out that the review found that many contract terms were “likely broader than reasonably necessary to protect the franchisor’s legitimate business interests”, Keogh said that the ACCC strongly encourage franchisors to use information revealed in the report to “inform a review of all their contract terms, and to seek independent legal advice about their obligations”.
“Franchisors should remove or amend any potentially unfair contract terms immediately, to avoid potential penalties,” Keogh averred. “Franchisors should also not seek to enforce any existing unfair terms.”
The report follows a review of smaller franchisors in industries including repair and maintenance, education and training, arts and recreation, wholesaling, personal services, and food retailing. Despite many of the franchisors looked at in that review being new to franchising, most of the documents assessed were largely compliant with the Franchising Code, and the review did not identify any systemic issues or concerns relating to the code.
That review did, however, raise concerns about unilateral variation clauses, withholding and set-off payment clauses, audit power clauses, restraint of trade clauses and termination clauses contained in standard contracts with franchisees.
“Our report contains several examples of the kind of unfair contract terms we are concerned about and want franchisors to address,” Keogh said. “Our warning to the franchising sector is that it is time to ensure that your contracts are fair.”
