Reading time: 4 minutes

When it comes to being a franchisee purchasing a franchise, a working knowledge of the Franchising Code of Conduct will go a long way to assist you in negotiating and bargaining with the franchisor. However, many people don’t consider how the provisions of the Australian Consumer Law (ACL) may come into play. This article will discuss franchise contracts through the lens of the ACL.

Does the Australian Consumer Law Apply to Franchise Contracts?

When one thinks of a consumer, they will not necessarily think that the laws relating to consumers would be relevant to a business or a business contract. However, amendments to the ACL in 2015 extended the definition of “consumer contract” to also account for small business contracts.

What is a Small Business Contract?

A small business contract requires several elements present before it can apply. Firstly, the contract needs to relate to the supply of goods and services or the sale of interest in land. Secondly, one of the contracting parties needs to be a business that employs less than 20 people. Thirdly, the contract should be based on either:

  • An upfront price not exceeding $300,000; or
  • An upfront price not exceeding $1,000,000 and the contract period is more than 12 months.

Many businesses in the franchising context would fulfil these elements. For franchisees entering into a franchise agreement, it is important to know that you may have extra protections through the ACL. For franchisors, it is important to ensure that the franchise agreement you use for your franchisees is in compliance with the ACL.

What Protection Does the ACL Provide?

Section 24 of the ACL provides protection for unfair contract terms. However, the prevention of unfair contract terms does not necessarily mean that there cannot be commercial terms that may benefit one party over the other. More specifically, the ACL determines that a term in the contract will be unfair if:

  • The term causes a significant imbalance in the rights and obligations of the parties;
  • The term is not reasonably necessary to protect the legitimate interests of the party who receives the advantage of the term; and
  • The term will cause a detriment (financial or otherwise) to a party.

The above summary provides a general description of unfair contract terms, but this will always depend on the circumstances of the matter and how the parties formed the contract.

For example, the court will consider whether each party was transparent to the term and the contract. The court will also look at the unfair contract term in light of the contract as a whole as this forms the entire agreement between the parties.

How Does this Relate to Franchising?

Franchising is undoubtedly renowned for an imbalance in the business relationship. This imbalance is particularly the case when it comes to larger franchisors as they are likely to have more established franchise systems in place that are not easily negotiable. When looking at franchise agreements, a court will consider whether one party can:

  • Limit performance of the contract;
  • Vary the terms of the contract without any rights of the other party to terminate; and
  • Unreasonably terminate the contract.

As noted above, the court will consider the entire contract as a whole. In the franchising contract, this will likely entail an analysis of what the franchisor provides in return for any terms that the court considers as unfair.

Key Takeaways

For all franchisees and franchisors, having a thorough understanding of not only the Franchising Code of Conduct but also the Australian Consumer Law will allow you to be better informed of your bargaining position and how the terms of the franchise agreement will hold up against the law.

It is important to note that with the legislative amendments, the ACL will now govern certain franchise arrangements. Franchisors and franchisees alike should know their rights and obligations. If you have any further questions or need assistance, get in touch with our franchise lawyers on 1300 544 755.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards