The ACCC warns franchisors over unfair contract terms

The ACCC is warning franchisors to remove unfair contract terms or risk legal action after a review of franchising contracts found wide-ranging concerns.

The consumer watchdog has long been concerned about the power imbalances between franchisees and franchisors, and a new report outlines the ACCC’s findings and concerns after it recently completed targeted franchising compliance checks.

Mick Keogh, Deputy Chair of the ACCC, said every franchising agreement they reviewed contained potentially unfair contract terms.

“We are concerned that franchisors are failing to grasp the importance of complying with the unfair contract terms provisions of the Australian Consumer Law (ACL).

“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.”

Keogh explained that many contract terms were likely broader than reasonably necessary to protect the franchisor’s legitimate business interests.

“The franchising relationship is often characterised by significant controls on franchisees. We are concerned this power imbalance is exacerbated when franchisors include or rely on unfair contract terms in their franchise agreements.

“This is why we strongly encourage franchisors to use our report to inform a review of all their contract terms, and to seek independent legal advice about their obligations. Franchisors should remove or amend any potentially unfair contract terms immediately, to avoid potential penalties. Franchisors should also not seek to enforce any existing unfair terms,” said Keogh.

The warning to franchisors comes after recent changes to the ACL that prohibit businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.

The changes came into effect 9 November 2023 and allow Courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts.

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