The ACCC is warning franchisors to urgently review and amend their standard form franchise agreements or be prepared for potential enforcement action after a review of franchising contracts found wide-ranging concerns.
A just-published report, outlines the ACCC’s findings from recently completed targeted franchising compliance checks.
The report highlights the commission’s concerns and provides franchisor guidance on complying with the newly-amended Australian Consumer Law (ACL).
ACCC deputy chair Mick Keogh said “We are concerned that franchisors are failing to grasp the importance of complying with the unfair contract terms provisions of the ACL. 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.”
The ACCC review discovered many contract terms were more broad than was reasonably necessary to protect the franchisor’s legitimate business interests.
The report follows a review of smaller franchisors in a range of industries including repair and maintenance, education and training, arts and recreation, wholesaling, personal services, and food retailing, many of which were new to franchising.
Documents were largely compliant with the Franchising Code, and the review did not identify any systemic issues or concerns relating to the Code.
However, the review identified 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 warning to the franchising sector is that it is time to ensure that your contracts are fair,” said Keogh.
Tips for franchisors
The following general tips may help franchisors when reviewing their standard form contracts:
- Consider both points of view: Even if you think a term is reasonably necessary to protect your business’s legitimate interests, consider the term, and any detriment it could cause, from the franchisee’s point of view.
- Include counter-balancing terms: Check whether your contract has appropriate counter-balancing terms.
- Avoid broad terms: Ensure terms are only as broad as reasonably necessary to protect your business’s legitimate interests.
- Meet your obligations under the ACL: Don’t include terms that seek to avoid your business’s obligations under the ACL or the Franchising Code. For example, terms that seek to limit your customers’ consumer guarantees rights, or terms that seek to disclaim any representations your business may have made outside of the contract.
- Be clear: Use clear and simple language in your contracts.
- Be transparent: Look for ways to ensure key terms are clearly drawn to the attention of your franchisees during the sign-up process, and any renewal process.
