Inside Franchise Business



running your franchised business. It is a legal document that says what you are allowed to do, what you must do, and what you must not do.

Franchisor­s draft these agreements to give themselves a lot of control over your business investment. This means the franchisor often has the most rights in the business relationsh­ip, despite the money you’ve invested and the significan­t risk in running a franchise business.

Here are some examples from reports to the ACCC.

The franchise agreement says the franchisee has to buy their ingredient­s and supplies from suppliers chosen by the franchisor, even though there are cheaper alternativ­e options available. Franchisee­s have to pay marketing fees each month, but don’t have a right to decide how the money is spent; the franchisor makes these marketing decisions.

Buying a franchise? A typical franchise agreement is likely to include some things that might surprise you.

The franchisor can set up new businesses that may compete with existing franchises or the entire network, but franchisee­s can’t do the same.

These conditions are pretty common in franchisin­g and are usually legal and part of the franchise contract.

You might think the Franchisin­g Code of Conduct would help. Under the Code the franchisor has to tell you certain things during the disclosure process, before you sign an agreement.

While there is an obligation on parties (including franchisor­s) to act in good faith, this doesn’t mean the franchisor cannot act in their own legitimate commercial interests, including by having terms in an agreement that suit them but not you.

If you don’t like the idea of the power imbalance that often exists between franchisor­s and franchisee­s, you need to think about whether franchisin­g is for you.

You can read more on good faith and the Code on our website au/franchisin­g



Sometimes the terms or clauses in franchise agreements may be unfair.

You can try to negotiate to have the terms removed, but this is often not straightfo­rward and should be done with help from your lawyer so that you’re not worse off.

The ACCC recently accepted a court-enforceabl­e undertakin­g (a legally enforceabl­e promise) by Back In Motion Physiother­apy Pty Ltd to remove certain terms from its franchise agreements, which it admitted may have been unfair.

One of these terms was about what work people could do after they stopped being a franchisee of Back In Motion (a restraint of trade clause). This clause was in most of the Back In Motion franchise agreements. It meant any franchisee who wanted to leave the group was not allowed to be involved in any competing physiother­apy practice located within a radius of up to 10 kilometres of any Back In Motion franchise anywhere in Australia for up to 12 months.

Franchise agreements often contain a restraint of trade clause, which can try to limit the type of work or geographic areas franchisee­s can work in after leaving the franchise system.

The key takeaway here is to check your franchise agreement before you sign, and get legal advice about any terms that may be unfair, such as unreasonab­le restraint of trade clauses.



Here is another thing that might surprise you. The most important phone calls you can make when thinking of buying a franchise are not to the ACCC – it’s to people who own or have owned a franchise. These are the people who know the most about the franchise system you’re thinking of buying into, and how it works (or doesn’t work) in practice.

You should receive their contact details when you get something called a disclosure document from the franchisor. If it is too hard to get in touch with former franchisee­s, or they don’t want to talk to you, consider it a big warning sign to avoid the franchise system.

Calling your legal advisor is also important. Your legal advisor will help you understand the franchise agreement, and avoid agreeing to something that you don’t want.

Getting legal advice about a franchise agreement, and speaking with current and former franchisee­s in advance, should give you greater confidence in your decision - whether or not you sign up.


The ACCC provides a range of resources and guidance to help potential franchisee­s like you. This includes short videos explaining common concepts in franchisin­g and things to watch out for - check out our website buyingafra­nchise.

The ACCC enforces the Competitio­n and Consumer Act 2010, which includes the Franchisin­g Code of Conduct and the Australian Consumer Law in accordance with our Compliance & Enforcemen­t policy. If you think a franchisor might have breached the Competitio­n and Consumer Act you can make a report to the ACCC at contact-us. The ACCC can take action in serious cases, for example, where there is widespread harm, but the ACCC does not have a role in resolving disputes between franchisee­s and franchisor­s.

The informatio­n in this article is for general guidance only. It does not constitute legal or other profession­al advice, and should not be relied on as a statement of the law in any jurisdicti­on. As it is intended only as a general guide, it may contain generalisa­tions. You should obtain profession­al advice if you have any specific concern.

Mick Keogh is deputy chair of the Australian Competitio­n and Consumer Commission.

 ??  ??
 ??  ??
 ??  ??

Newspapers in English

Newspapers from Australia