Reading time: 3 minutes

You have probably read about the Pizza Hut franchisees taking their franchisor, Yum!, to Court following mandatory pricing implemented by the Franchisor whereby pizza’s had to be sold for $5 a pop. After deducting slices of that $5 for raw ingredients, labor, rent, franchise fees, and all the other costs that go into running a franchise pizza shop, the Franchisees claim all that was left for them from that $5 was, well, just the crumbs really.

While the franchisee dispute case is currently before the Court, and we don’t therefore have a decision yet, the nature of the claim nonetheless provides some valuable reminders for franchisors, as follows:

  1. Be careful about changing your Operations Manual – Franchisors are, generally, entitled to update their Operations Manual and enforce the terms thereof. But in doing so, franchisors must be mindful of the terms of the franchise agreement, including implied terms, and duties owing to the franchisees.
  2. Consider the needs of franchisees in making mandatory changes to the franchise system – while the $5 a pop pizza strategy may have made Pizza Hut competitive with Domino’s, and thus allowed the Franchisor to maintain its market share, the nature of the current legal proceedings indicate the mandatory changes were made without proper consideration of the franchisees and their bottom lines;
  3. Actually listen when your franchisees complain – yes, you may have a contractual right to enforce certain changes, but as a franchisor you are also required to work with your franchisees and listen to what they say. The obligation of good faith in franchising relationships now forms part of the franchising code of conduct, and will apply to communications between the parties and their resultant actions;
  4. Try and test proposed changes – even if something works on paper, its practical operation may be a different story. Proposed significant changes to the system or pricing structure should be tried and tested before enforced against all franchisees.
  5. Don’t think you won’t get sued – just because your franchisee may have limited funds, don’t think you won’t get sued. Litigation funding is a common way for franchisees to band together to take on their franchisor, and it doesn’t take anything to complain to the ACCC.

We will be following this case carefully to see what the Court finds and, more importantly, what it means for our franchisor and franchisee clients. Even before that decision has been handed down, however, it is important you consider these points in updating or changing your Operations Manual or enforcing mandatory changes to the franchise system, to avoid ending up in court, too.

Webinars

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Online
Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

Online
If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Online
Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
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 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer