Law change to balance franchise relationship

Franchisees are set to benefit from a levelling of the playing field, due to a law change that will take effect from 12 November 2016.

According to the Australian Competition and Consumer Commission’s (ACCC) deputy chair Dr Michael Schaper, franchise agreements often include clauses that can amount to unfair contract terms.

“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 told the National Franchise Convention in Canberra.

“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.”People and industry trying to find balance

A change in the law applies to all new standard form contracts as well as contract variations made on or after 12 November 2016, which the ACCC says will require contracts to close certain loopholes and remove ambiguous references that can potentially be detrimental to franchisees.

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.

Of particular concern to the ACCC are:

• The removal of provisions for the unilateral variation of documents such as operation manuals by franchisors, which generally form part of the franchise agreement.
• Liquidated damages reflecting genuine estimated costs for franchisors.
• A review of termination clauses to comply with the Franchising Code as well as not being “unreasonably broad and oppressive”.
• Restraint of trade clauses, which will be judged on length of the restraint, geographic area to which it applies and breadth of conduct.

“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.

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