If you run a franchise network, your agreement is probably doing more work than you think, and not all of it in your favour.
The ACCC has just finalised action against a franchisor in the fitness sector over unfair terms in its franchise agreements, and separately over misleading claims about NDIS funding on its website. There was no court case and no hefty penalty. The franchisor simply agreed to rewrite the contract. That’s the outcome the ACCC wants every franchisor to reach on their own, before it must step in.
What happened
The ACCC raised concerns about three terms in the franchisor’s agreements:
- A broad restraint stopping an ex-franchisee from working in the industry after their agreement ended.
- A high late-payment interest rate that looked less like a genuine cost estimate and more like a penalty.
- A clause requiring franchisees to pay out all remaining service fees if the agreement ended early.
Following the ACCC’s involvement, the franchisor narrowed the restraint, reduced the interest rate, dropped the early termination fee, and corrected the content on its website.
Why this matters for your agreement
Unfair contract terms have been banned in standard form small business contracts for many years. Most franchise agreements fit that description exactly: drafted by the franchisor and offered to franchisees on a take-it-or-leave-it basis.
That means the law may very well apply to your agreement too, regardless of your industry. The consequences of getting it wrong are significant. A court can void an unfair term outright and impose penalties of up to $50 million for a business (or three times the benefit gained, or 30% of turnover during the breach period, whichever is greater), and up to $2.5 million for an individual.
A term doesn’t need to be deliberately unfair to be caught. It’s tested against three questions: does it create a significant imbalance between the parties, is it reasonably necessary to protect a legitimate interest, and would it cause detriment if relied on?
What to do now
- Read your agreement as a franchisee would. A clause that protects you can still be unfair if it goes further than necessary and gives the franchisee nothing in return.
- Check the usual suspects: restraint of trade, termination and default rights, unilateral variation powers, audit and cost-recovery clauses, and payment or interest terms.
- Balance any clause that gives you broad discretion with something in the franchisee’s favour, such as a notice period, a cap or a right of reply.
- Use plain language and flag key terms clearly at sign-up and renewal, not buried in a schedule.
Key facts
- Since 9 November 2023, unfair contract terms attract penalties.
- Maximum penalty, businesses: $50 million (or three times the benefit gained, or 30% of turnover during the breach period)
- Maximum penalty, individuals: $2.5 million
- Recent enforcement outcome: the ACCC finalised negotiations with a fitness sector franchisor over unfair terms and misleading claims
Not sure whether your franchise agreement would hold up? Talk to our Franchising team.
This article is general information only and is not legal advice. Every franchise agreement is different, so get advice on yours before relying on this.
