Back in Motion is to remove allegedly unfair terms from its franchise agreement after the Australian Competition and Consumer Commission raised concerns about certain clauses.
The physiotherapy group has admitted that the restraint of trade and buy-out fee terms, which have been part of most of its standard form franchise agreement for more than 15 years, may be ‘unfair’ as defined by the Australian Consumer Law.
Jason Smith, Back in Motion group director, told Inside Franchise Business Executive “The ACCC approached us as part of its review into franchise agreements among Australian franchise businesses. Following the review, the ACCC informed us that they consider that parts of the restraint of trade and buy-out fee terms within our agreements may fall below the standard of fairness defined by the Australian Consumer Law.
“This year, as a result of our undertaking to the ACCC and as part of our annual review of our franchise agreements, we are amending these terms to ensure they are beyond reproach in meeting franchisee, regulator, and legal expectations.”
The two clauses in question in the franchise agreement relate to restricting an exiting franchisee’s trade.
Under a restraint of trade clause any exiting franchisee could not join a competing practice within a radius of up to 10 kilometres of a Back In Motion Physiotherapy franchise for up to 12 months.
ACCC deputy chair Mick Keogh said “Effectively, this clause in the franchise agreement meant that most former franchisees could not operate in many parts of metropolitan areas of Australia because of the existence of other Back In Motion Physiotherapy franchise outlets in those locations.
“We were concerned that this clause may cause detriment to franchisees seeking to exit the Back In Motion Physiotherapy franchise.”
Another clause allowed franchisees to be released from this restraint of trade at a cost – a ‘buy out fee’ equal to four times their annual royalty fees.
Back In Motion Physiotherapy has undertaken not to enforce the restraint of trade and buy-out fee terms in future, or for franchisees who have left the group in the past 12 months. It will also not include these terms in its future franchise agreements.
The franchisor will also inform all affected franchisees including those who left within the past 12 months that these terms will not be enforced.
Smith said “We are committed to ensuring our agreements not just comply with the law but also exceed industry standards and best practice and that they benefit our patients, franchisees, and our business mutually.”
The undertaking means franchisees are free to leave the Back in Motion Physiotherapy franchise group and work anywhere in Australia “without having to pay an exorbitant fee,” Keogh said.
“Franchisors often have a stronger bargaining position in their dealings with franchisees, and we will investigate and take action against franchisors where we believe their contracts with small businesses contain unfair contract terms under the Australian Consumer Law.”
A clause restricting former franchisees for nine months from actively soliciting a client they know has been a client of a Back In Motion Physiotherapy franchise located within 10km of the former franchisee’s Back in Motion Physiotherapy practice continues to apply.
