Significant changes to the Australian Consumer Law came into force on 9 November 2023. For Franchisors, these changes up the stakes considerably when it comes to the terms of their Franchise Agreements.
Under Australian Consumer Law, Franchisors are prohibited from entering into ‘standard form contracts’ with small businesses or individuals that include Unfair Contract Terms (UCTs). All contracts are presumed to be ‘standard form contracts’ unless proven otherwise.
Previously, if a term was interpreted by a court or tribunal to be unfair, it would simply be void (that is, not binding). On and from 9 November 2023, Franchisors who include UCTs in their Franchise Agreements can be subject to significant financial penalties by the Australian Competition and Consumer Commission (ACCC), including fines of up to $50 million.
Is your Franchise Agreement compliant with the new Unfair Contract Term legislation?
Some common clauses in Franchise Agreements have already been identified by the ACCC as potential UCTs:
- Unilateral variation clauses: terms that give the Franchisor the right to vary terms unilaterally. Common examples of unilateral variation clauses include the right of the Franchisor to vary the operations manual and approved supplier’s list.
- Withholding or setting-off payments: terms that allow the Franchisor to withhold or set-off payments owed to the Franchisee in situations where the Franchisee owes the Franchisor money.
- Audit power clauses: clauses that allow the Franchisor to audit the Franchisee’s business and oblige the Franchisee to pay for the costs of the audit.
- Restraint of trade clauses: clauses that limit when and/or where a Franchisee can supply goods or services for a period of time once the Franchise Agreement ends.
- Termination clauses: clauses that give the Franchisor rights to terminate the Franchise Agreement with little or no limitation.
SUMMARY
The ACCC has made it clear that the franchising sector is on notice regarding the prevalence of UCTs in Franchise Agreements and that it expects Franchisors to proactively review their Franchise Agreements considering the new UCT protections.
With the possibility of enforcement action from the ACCC (and the significant financial penalties that could result from a breach) Franchisors should not delay in seeking a thorough review of their Franchise Agreements to ensure compliance with the updated Australian Consumer Law.
Contact O’Shea & Partners Lawyers to arrange for a review of your franchise documents today.