Running a franchised business offers many advantages over other types of businesses. A franchisee has access to ongoing support and training, as well as pre-determined systems and processes that help sell the franchise network’s products and services.

As a highly regulated area of the law, franchisees must adhere to strict legal obligations. This article sets out the key ongoing legal obligations for franchisees.

Franchise Agreement

Your franchise agreement is a specific contract formalising your relationship with your franchisor. Along with the Franchising Code of Conduct (the Code) and related documents, your franchise agreement is a fundamental source of your roles and responsibilities and those of your franchisor. You should, therefore, have a sound understanding of your written agreement.

Your franchise agreement typically includes exhaustive lists of what your franchisor expects of you. For example, it may include the following information:

  • the range of products and services you must offer to customers;
  • maintaining any equipment and premises;
  • ordering supplies;
  • what fees you are required to pay to the franchisor, including interest for late payments;
  • activities for which you have to obtain the franchisor’s prior written consent;
  • ongoing reporting.  For example, sales and customer complaints; and
  • notices to provide to the franchisor if specific events occur. For example, a change in shareholders of the franchisee company.

If you are concerned that you may have potentially violated your franchise agreement, you should obtain legal advice immediately. It is vital that you avoid waiting until you receive a breach notice. By being proactive, you can try and mitigate the issue and remedy the breach before your franchisor formally escalates the issue.  

Operations Manual

Most franchisors have an operations manual. This is a document detailing the standards and procedures that apply to all businesses within a particular franchise network. A franchise agreement may contain a clause stating that it is compulsory for franchisees to follow the manual. In this circumstance, the manual becomes a binding contract between the franchisor and yourself, as the franchisee.

An operations manual may include:

  • requirements around software;
  • up-selling products and services;
  • advertising strategies; and
  • which suppliers you can use to purchase products.

If you do not understand a particular procedure outlined in the manual, clarify it with your franchisor. Doing so shows that you are taking reasonable steps to meet your obligations.

Good Faith

As a franchisee, you must act in good faith in all dealings with your franchisor. The good faith obligation is set out in the Code and applies equally to your franchisor.  For example, acting in good faith encompasses:

  • being honest;
  • co-operating with the franchisor;
  • taking into account the franchisor’s commercial interests; and
  • acting in accordance with your legitimate business needs (rather than a hidden, non-commercial agenda).

On the other hand, not acting in good faith may include:

  • arbitrarily issuing breach notices;
  • trying to terminate your contract using baseless allegations;
  • aggressively pressuring the franchisor; or
  • refusing to engage properly in the dispute resolution process.

Laws for Australian Franchises

Apart from your contract and franchise-specific laws, you must also comply with any other regulations that may apply to your particular franchise business. These may include:

  • employment laws;
  • workplace health and safety laws;
  • food safety laws;
  • licensing laws; and
  • privacy laws.

Employment Laws

If you hire staff to work in your franchise, it is essential to adhere to the Fair Work Act 2009 and other employment laws. This is particularly true when hiring and paying employees and dealing with disputes.

It is important to ensure that all of your employees have signed an employment agreement governing your relationship with them. The agreement should contain critical matters, such as:

  • salary;
  • leave;
  • entitlements; and
  • ways to resolve a dispute if one arises.

Workplace Health and Safety Laws

Workplace health and safety (WH&S) laws require you to:

  • provide a healthy and safe working environment for your employees, contractors and visitors;
  • proactively protect them from injury and illness; and
  • promote their welfare.

To implement such laws, you must have a WH&S policy outlining your procedures and expectations.

Food Safety Laws

If your franchise sells or handles food, food safety laws like the Food Standards Australia New Zealand Act 1991 regulate how you can manage and sell your food products. They include standards you must meet to ensure your food is of high quality and suitable for human consumption.

Licensing Laws

Depending on what product or service your franchise provides, you should ensure you comply with any required licensing laws.

For example, if you sell alcohol, you must hold a valid liquor licence. Further, employees handling alcohol must have an additional responsible service of alcohol qualification.

Privacy Laws

If your franchise collects personal information, you may need to comply with Australian privacy laws. Having a well-drafted privacy policy in place allows you to state :

  • what information your franchise collects;
  • whether your franchise exchanges information with third parties;
  • how an individual can correct their information and complain about a breach;
  • Your process for dealing with complaints about privacy.

Dispute Resolution

If you believe your franchisor is not compliant with its responsibilities, and you want to start a formal dispute, you must issue a written notice. In the notice, you should set out:

  • exactly what the dispute is;
  • your desired resolution;
  • what you want your franchisor to do; and
  • how long they have to take these steps.

If you are unable to resolve the dispute internally and within three weeks, you can mediate the dispute in accordance with the Code. Attendance at mediation is compulsory for both yourself and the franchisor. However, compulsory mediation does not prevent either party from starting proceedings in a court.

Key Takeaways

Being aware of and complying with your ongoing obligations as a franchisee is important – if you violate a rule under the Code, the franchise agreement, or your operations manual, your franchisor can issue you with a breach notice. If you ignore the breach notice and do not attempt to remedy the breach, your franchisor can rely on this notice as a basis to terminate your franchise.

If you have any questions, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

Amritha Thiyagarajan
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