ACCC advises franchising industry to consider its agreements

The Australian Competition and Consumer Commission is warning franchisors about potentially unfair contract terms under a new law offering greater protections to small businesses from November 12, 2016.

ACCC Deputy Chair Dr Michael Schaper outlined the ACCC’s findings following a review that identified a number of problematic terms that appear to be widespread in the franchising industry.

“Of particular concern are terms that give the franchisor unconstrained power to unilaterally vary agreements or operations manuals, broad restraint of trade clauses, excessive liquidated damages, and unreasonable termination clauses,” Dr Schaper said.

“The ACCC urges franchisors to reconsider whether such terms are necessary and to ensure that the contractual relationship is not unbalanced, as a result of any such terms.”

The new law will apply to a standard form contract entered into or renewed on or after November 12, 2016. If a contract is varied on or after this date, the law will apply to the varied terms. Contracts covered include those between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year.

“Franchisors should be taking action now to ensure that their contracts do not contain unfair contract terms or risk having a court strike the term out of the contract,” Dr Schaper said.