News & Insights

Since the expansion of the application and imposition of fines for unfair contract terms (UCT) laws on 9 November 2023, the Australian Competition and Consumer Commission (ACCC) has proactively cautioned Franchisors to promptly reassess and revise their standard form franchise agreements.

Given the significant penalties now available for businesses under UCT laws, businesses, and as detailed in this article, franchisors, must take note of the ACCC’s warning. Maximum fines for a contravention can be the greater of $50 million, 3 times the benefit or if that is unable to be determined, then 30% of adjusted turnover for the contravention period.

In December 2023, the ACCC published a report on its key findings after conducting a targeted compliance check on franchisors. Of the 10 franchisors from a variety of industries, the ACCC considered that there were a significant number of clauses in franchise agreements that has raised UCT concerns.

Recurring prevalent issues included unilateral (one sided):

• variation clauses;
• withholding and set off payment clauses;
• audit power clauses;
• restraint of trade clauses; and
• termination clauses.

The ACCC Deputy Chair Mick Keogh expressed that the ACCC is ’…concerned that franchisors are failing to grasp the importance of complying with the unfair contract terms provisions of the ACL. Every franchising agreement reviewed contained potentially unfair contract terms.’

Key take aways for franchisors

The ACCC has strongly advised franchisors to:

1. Conduct a thorough review of franchise agreements and any other standard form consumer contracts or standard form small business contracts used in the business;
2. Amend and update franchise agreements to rectify any potential unfair terms;
3. Ensure that all standard form contracts (including the franchise agreement) consider both points of view, include counter-balancing terms, avoid broad terms, are clear and transparent.

The ACCC has issued a clear warning, stating, ‘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.’

How can Macpherson Kelley assist with Unfair Contract Terms?

Macpherson Kelley’s franchise team are here to provide advice and guidance on the UCT laws and the Franchising Code. We can review your franchise agreement or standard form contracts and assist with re-drafting terms that are potentially unfair, or if strictly necessary, help make them transparent so they can be included.

For further assistance, please contact one of our experts.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.