Saturday, 17 March 2018

Franchise Business Life Cycle

It's not unusual for retirees and other people looking for a career change to consider buying an existing Franchise business or acquiring a greenfields territory within a particular Franchise system.

Even though the Franchise system itself may have been in existence and operating for some time, and although the Franchisee may be provided with initial training in the system, procedures and processes - all new Franchisees to that system still need time to get up to speed on how best to operate the Franchise business with a view to its ongoing growth and staying profitable.

A factor which Franchisees should make themselves of is the business life-cycle.

Business Life Cycle Diagram

By understanding this cycling process, Business owners will be in a stronger position to recognise trends, adapt business planning, and put appropriate strategies in place to remain profitable.


The introduction or establishment stage is the birth of the Business. In this stage:

  • New services and products introduced at this stage are more susceptible to failure. This may be attributed to:
    • Technical issues with new products/services;
    • Delays in product/service availability;
    • Reluctance by consumers to change established behaviours and adopt the Business owner's new product or service;
    • The Business owner not fully understanding customer pricing behaviours.
  • Detailed planning should have been commenced pre-start up;
  • Customer numbers are low; 
  • Sales turnover is low; 
  • Expenses are higher; 
  • Profit is likely to be negligible (if any); 
  • The Business owner needs to more aggressively market the products/services of the Business to break into the marketplace; 
  • The Business owner's aim should be to get the Business onto a stable foundation of profitable sales and a consistent cash flow as soon as possible. 
  • Typically after the Business survives the introductory phase, product and service sales will experience more rapid growth; 
  • However, progressively over time as more customers purchase new products or services, the size of the potential customer base decreases and new customers become more difficult to find; 
  • Assets needed to operate the Business should now have been acquired; 
  • Cash flow will remain positive; 
  • Expenses will still increase but at a reduced rate; 
  • Profit will be positive; 
  • Customer satisfaction may be more challenging if resources are insufficient. There may be an increasing need to employ more staff and/or outsource Business functions; 
  • The operation and management of the Business will likely become more complex as it grows; 
  • Planning must be revisited on a regular basis; 
  • Marketing remains a key focus; 
  • There is likely to be a greater need to make capital injections, for example, to update equipment. 
  • As the market approaches saturation, Business growth will slow until sales stabilise; 
  • Income continues to rise for a period, then levels off; 
  • Profits will peak then begin to decline. This might be attributed to: 
    • Increasing numbers of competitive products and services in the market;
    • Increasing costs related to research & development to find better versions of the product;
    • The product or service starts losing its distinctiveness.
  • Because of the potential profit erosion, it will be important for Business owners to put appropriate strategies in place. Such strategies may aim to extend the product or service life cycle, resulting in renewed growth followed by further stabilisation at an overall higher level of sales. This could be achieved by: 
    • Promoting more frequent use of your products and services among existing customers;
    • Attracting new customers;
    • Promoting a wider or different range of products and services;
    • Product or service improvements;
    • Repackaging;
    • New pricing regime; or
    • New advertising/marketing campaign. 
  • Ultimately the aim is to maintain profits as long as possible before they start to fall; 
  • The customer base will be relatively strong for a period but will start to decline; 
  • Cash flow should remain consistent for a period; 
  • As growth slows more detailed long term planning is required; 
  • Finances need to be monitored; 
  • Spending will need to be reduced to match income. 

Triggers for decline in a Business may include:
  • Technological innovation which may make the Business owner's products and services obsolete;
  • Changes in the economic environment – the 2008 global financial crisis (GFC) being a prime example.
  • Where a product or service is declining the Business owner needs to consider either: 
    • Removing the product or service from their Business without delay; or
    • Gradually phasing the product or service out over a period of time; or
    • Looking at ways to rejuvenate the product or service;
  • Income and profits consistently drop; 
  • Competitors are increasingly able to entice away the Business owner's customers either with better service, lower prices or more modern products/services; 
  • The Business Owner needs to advertise aggressively to maintain their customer base; 
  • The Business owner needs to continually look at ways to differentiate from the competition. 

In order for businesses to continue to exist they need to reduce their dependence on individual product or service lines. Instead they should develop a portfolio of products or services so that when one product or service may be in decline, a different product or service will be in the growth stage.

Difficulties arise where the Franchisor has a significant degree of control over the Franchise system and the individual Franchisee has less flexibility to alter price, products and services and engage in marketing activities outside of what the Franchisor approves.

Prospective Franchisees should include as part of their due diligence investigations an assessment of:
  • at what point is the Franchise system along the business life cycle;
  • the business life cycle in respect of the individual Franchise Business;
  • the degree of control exercisable by the Franchisor over the Franchisee and the Franchise  Business, taking into account how this control can impact on the Franchisee's ability to manage the business life cycle of the Franchised Business.
Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

Monday, 5 February 2018

Franchising versus Licensing

What is a Licence ?

A licence is a right granted by one person (the licensor) in favour of another person (a licensee), allowing the licensee to do certain things. For example, it could be to:

  • use the licensor’s intellectual property. Eg. access to a trade mark; or
  • sell the licensor’s products,
within a certain territory.

A right granted by a licensor to exclusively distribute the licensor’s products (eg. ABC Widgets) in say Queensland through a Distribution Agreement, would be a form of licensing arrangement.

Licensing is generally quite limited in its scope compared to a franchise.

Licence of Franchise – Which is it ?

Licensing arrangements are perceived to be less complex and a cheaper alternative to franchising due in part to franchising being a regulated industry. Just because a document or arrangement is called a licence or viewed by the parties as a licence does not mean that the document or arrangement will not be deemed a Franchise Agreement and the Code then apply.

Getting this distinction wrong can be very costly. Generally:
  • If you possess a degree of control over another party’s methods of operation; or 
  • You agree to provide support in respect of the other party’s operations; and 
  • You receive a fee as a condition to the other party commencing and continuing its operations, 
then you should proceed with caution and check if the arrangement might constitute a franchise and be caught by the Code.

If there is doubt as to whether an arrangement is a licence or franchise, it is best to lean on the side of caution and structure the arrangement as a franchise from the outset.

Franchising Code of Conduct

In Australia, Franchising is regulated under the Franchising Code of Conduct, which is a mandatory industry code prescribed under section 51AD of the Competition and Consumer Act 2010 (CCA).

When is a particular business model a Franchise ?

The Code sets out what falls within the definition of a Franchise Agreement. The Code provides as follows:

Element One

A franchise agreement is one:
  • which can be in writing, oral or implied; and 
  • where a person (the franchisor) grants to another person (the franchisee), 
Element Two
  • the right to carry on the business; 
  • of supplying or distributing goods or services; 
  • under a system or marketing plan, 
substantially determined, controlled or suggested by the franchisor; and

Element Three
  • under which the operation of the business will be substantially or materially associated with:
    • a trade mark; or
    • advertising or a commercial symbol;
  • owned, used, licensed or specified by the franchisor or an associate of the franchisor; and
Element Four
  • under which, before starting or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example: 
    • an initial capital investment fee; or
    • a payment for goods or services; or
    • a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; 
    • a training fee or training school fee.
In determining whether a franchise applies to a particular business model, it is necessary to check the model against the above elements.

The more that these elements apply to a business model, the more likely it is that the business model is a franchise, in which case the Code would apply.

System or Marketing Plan

The Code does not define what is a system or marketing plan nor does the Code state when it is necessary to consider if such a system or plan is present.

However, the courts have set out certain factors which may indicate the presence of a “system or marketing plan”, in which case the Code would apply (not a licence). For example:
  • compensation structures for selling goods or services;
  • centralised bookkeeping;
  • centralised record keeping;
  • centralised computer operations;
  • suggestions as to the retail prices to be charged for products or services;
  • requirement that only certain products must be produced or sold;
  • specifying certain methods for providing goods or services, which must be followed;
  • detailed advertising or promotional programs to be adopted;
  • right to screen or approve promotional material;
  • setting sales quotas;
  • right to approve who is employed;
  • mandatory training programs;
  • customer information to be gathered and provided;
  • restrictions on what other products can be sold.
These are just examples of some of the factors and are not exhaustive.

Substantially determined, controlled or suggested by the Franchisor

The Code also does not specify when a system or marketing plan is substantially determined, controlled or suggested by the franchisor.

There is some overlap of these two concepts. The courts have said that there a number of factors to assess in determining this question, such as:
  • the extent to which the arrangement between the parties incorporates the sale of an alleged franchisor’s products;
  • the appearance of some centralised management;
  • presence of uniform standards as regards the quality and price of goods or services sold;
  • whether or not there is an obligation (imposed by the franchisor) to advertise or to conduct promotions;
  • the extent to which the alleged franchisor controls the franchisee’s business having regard to matters such as:
    • prescribing the hours and days of operation;
    • providing advertising and support;
    • auditing of books;
    • inspection of premises;
    • control over employee uniforms;
    • setting prices;
    • setting sales quotas;
    • management support; and
    • training.
Trade Mark/Brand

If the business that the other party is to operate is substantially or materially associated with a brand, name or logo, then that may indicate a franchise (not a licence). It would be a matter of checking the extent to which the other elements may apply.


If certain fees are to be paid, such as the below, that would tend to indicate a franchise (not a licence):
  • royalty payments; 
  • up-front fees; 
  • advertising payments; 
  • commissions; 
  • training fees. 
It would be a matter of checking the extent to which the other elements may apply.

Avoiding being captured by the Code

Some businesses seek to avoid being captured by the Code by:
  • not providing a system or marketing plan; or 
  • not providing the other party access to a trade mark, brand or logo. 
That is, they seek to avoid carrying on a business model that satisfies all 4 elements (as per above).


It is important to understand the difference between a licence, distribution agreement, dealership agreement and franchise.

Getting this wrong can have adverse effects on the rights and obligations of the parties to the agreement.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

Thursday, 11 January 2018

Can a Franchisor Control the Pricing at Which a Franchisee Sells Products and Services

In relation to a Franchisor seeking to control the pricing in respect of what its franchisees can charge for products and services:

Resale Price Maintenance ("RPM") - Minimum Pricing

Generally, RPM occurs where a supplier requires a business not to sell goods below a minimum price that the supplier stipulates.

So, in a Franchisor's case it would occur if the Franchisor stipulated that its franchisees could not charge below a minimum amount for the services they provide.

This type of conduct is prohibited under the Competition and Consumer Act 2010 (Cth) ("CCA"). For example, section 48 of the CCA states:- "A corporation or other person shall not engage in the practice of resale price maintenance."

There is scope, however, in limited situations to apply to the Australian Competition and Consumer Commission (ACCC) for authorisation of RPM. But to be successful on such an application it would need to be on public benefit grounds.

Recommended Prices

Under section 97 of the CCA, a Franchisor can avoid the RPM prohibition by adopting a recommended price strategy in regards to the prices its franchisees charge. The key issue though, is that the price must be "recommended".

Maximum Prices

In terms of the CCA, there is no specific section which restricts a Franchisor from adopting a maximum price strategy.

So a Franchisor is permitted to set a maximum price.

In deciding at what level to set as the maximum price, Franchisors should keep in mind:

(a) the factors which can impact on price and whether a particular franchisee (say based on location) is able to secure more profit than another franchisee in a different location;

(b) to exercise your decision in good faith and with reasonable cause;

(c) not set maximum prices arbitrarily - meaning, have a thought process and document its reasons
behind setting the maximum price;

(d) not to act capriciously, unreasonably or dishonestly in setting maximum prices.

Recommended and maximum prices maybe set out in the Franchisor's Operations Manual.

Legal advice should be obtained as appropriate.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

Exploitation of vulnerable workers, Franchising and changes to the Fair Work Act 2009

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 passed both Houses of the Australian Parliament on 05/09/2017. The Bill received assent on 15/09/2017 and the obligations under the Act in relation to Franchisors commenced from 27/10/2017.

The Bill arose due to increasing community concern about the exploitation of vulnerable workers (including migrant workers) by employers who breached their obligations. In particular, the Bill follows:

(a) a number of high profile cases involving Franchisees underpaying their staff, for example, within the Dominos franchise network and the 7-Elevan franchise network, where the Franchisor is seen to have ignored the problem; and

(b) recent government enquiries, such as the Fair Work Ombudsman’s - A Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven, April 2016.

A range of measures were introduced, including an increase in the maximum penalties for employers who deliberately flout the minimum wage and other entitlements under the Fair Work Act 2009. 
Some of these changes are:

(a) increased penalties for ‘serious contraventions’ of workplace laws;

(b) employers cannot ask for ‘cashback’ (or payments) from employees

(c) increased penalties for breaches of record-keeping and pay slip obligations

(d) stronger powers given to the Fair Work Ombudsman in relation to its investigations

(e) new penalties for giving false or misleading information to the Fair Work Ombudsman, or hindering or obstructing their investigations.

Importantly for Franchisors, the Franchisor (or one of their officers) can potentially be held responsible if their Franchisees do not follow workplace laws. This is on the proviso the Franchisor:

(a) has a significant degree of influence or control over the Franchisee's affairs; and

(b) knew about the Franchisee’s breach; or

(c) should have known of the breach; and

failed to take reasonable steps to prevent the breach.

For example, a Franchisor could potentially be held liable if a Franchisee underpays its employees and the Franchisor could reasonably be expected to have known the contravention would occur.

What constitutes a ‘significant degree of influence or control’ is not defined in the Fair Work Act 2009, so we will have to see how the courts interpret this phrase.

Where a ‘serious contravention’ of workplace laws has been found to have occurred, a court could impose a maximum penalty of $630,000 (corporations) and $126,000 (individuals) per contravention. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 also inserted a new section 557A defining what is meant by a ’serious contravention’ – which in essence requires the contravention to be:

(a) deliberate; and

(b) part of a systematic pattern of conduct.

From a Franchisor's perspective, it will be important that they incorporate internal organisational processes to show they have taken all reasonable steps to prevent Franchisees from contravening workplace laws.

What are reasonable steps will vary from organisation to organisation. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 also inserted a new section 558B(4) into the Fair Work Act 2009, which sets out a range of matters relevant to determining whether a Franchisor has taken reasonable steps. These include (in summary form):

(a) the size of the franchise (ie. franchisee’s business);

(b) the resources of the franchise (ie. franchisee’s business);

(c) the extent to which a person (eg. the Franchisor) had the ability to influence or control the contravening employer’s (ie. franchisee’s) conduct in relation to a contravention of workplace laws;

(d) any action the person (eg. Franchisor) took to ensure that the contravening employer (ie. franchisee) had a reasonable knowledge and understanding of the requirements of workplace laws;

(e) the person’s (eg. Franchisor’s) arrangements (if any) for assessing the contravening employer’s (eg. franchisee’s) compliance with workplace laws;

(f) the person’s (eg. Franchisor’s) arrangements (if any) for receiving and addressing possible complaints about alleged underpayments or other alleged contraventions of workplace laws within the franchise;

(g) the extent to which the person’s (eg. Franchisor’s) arrangements (whether legal or otherwise) with the contravening employer (ie. Franchisee) encourage or require the contravening employer (ie. Franchisee) to comply with Fair Work Act 2009 or any other workplace law.

To minimise a Franchisor's risk of being held liable for breaches of workplace laws by its  franchisees, below are a few suggestions:

(a) take appropriate steps to get a better understanding of its obligations;

(b) provide relevant information to its franchisees to assist them in understanding their obligations to their employees;

(c) in the event the Franchisor becomes aware of a suspected or identified breach by a franchisee, the Franchisor should act promptly and be proactive in directing/assisting the franchisee to address the breach;

(d) consider including provisions in the Franchise Agreement which: (I) emphasises the franchisees obligations to their employees; and (ii) includes further termination provisions in the Franchise
Agreement to deal with breaches by franchisees of workplace laws;

(e) ensuring the Franchisor has an appropriate internal paper trail documenting the ways in which it has assisted franchisees to comply with workplace laws, for example, having appropriate policies in place and conducting spot audits of franchisee employment records from time to time.

Appropriate legal advice should be sort where applicable.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

Can Consultants Fees be paid out of a Franchise Marketing Fund

Under clause 15 of the Franchising Code of Conduct ("the Code"), where a Franchisor operates a Marketing Fund, the Franchisor is required to provide each of its Franchisees with an annual financial statement detailing all of the fund’s receipts and expenses.

This statement must be provided no later than 31/10/XX in each year and detail the previous financial year fund’s receipts and expenses.

There are also auditing obligations around the Marketing Fund, which may need to be met depending on voting, as further set out in the Code.

Clause 15 goes onto say that the statement must include sufficient detail of the fund’s receipts and expenses so as to give meaningful information about: 

(a) sources of income; and 
(b) items of expenditure, 

particularly with respect to advertising and marketing expenditure.

However, clause 15 itself does not go into any detail about what types of income and expenses need to be listed. The clause just says there needs to be sufficient detail.

Clause 31 (3) does state though that marketing fees or advertising fees may only be used to:

(a) meet expenses that:

(i) have been disclosed to franchisees in the Disclosure Document; or

(ii) are legitimate marketing or advertising expenses; or

(iii) have been agreed to by a majority of Franchisees (e.g. over 50%); or

(b) pay the reasonable costs of administering and auditing a Marketing Fund.

Based on the above, a question arises as to whether "wages" of "consulting fees" paid to an employed salesperson or a contracted salesperson (consultant) are a form of marketing or advertising expense ?

Looking at the Oxford Dictionary definitions:

(a) "Marketing" means - the action or business of promoting and selling products or services, including market research and advertising;
(b) "Advertising" means - the activity or profession of producing advertisements for commercial products or services; and

(c) "Expense" or "Expenses" means - the cost incurred in or required for something or the cost incurred in the performance of a person's job or a specific task.

Adopting the Oxford dictionary definitions it is arguable that an expense incurred (eg. wages or consulting fees of a salesperson) in order to provide services relating to promoting and selling the brand overall or products and services connected with the brand is a form of marketing expense, in terms of what is captured under the Code.

The next question to ask is:- what are legitimate marketing or advertising expenses ? This phrase is not defined in the Code. As a result, it is necessary in considering legitimacy of expenses to assess whether the expense is "reasonable" in the circumstances. That is, the question of reasonableness is an objective one, requiring a consideration of all relevant circumstances to determine the fairness of a decision or action.

From a practical perspective, if a Franchisor were to use the Marketing Fund proceeds toward engaging one or more salespeople it will be important to assess the reasonableness of that decision, taking into account factors, such as:

(a) how many salespeople are being engaged;

(b) what locations will the salespeople provide their services (eg. is it feasible that the salesperson can divide their time so that each Franchisee obtains an equal benefit from the salesperson's efforts);

(c) exactly what will be the scope of work that the salespeople will undertake;

(d) is there enough money in the Marketing Fund to pay for the salesperson's wages/or consulting fees ?

In summary,  (depending on the circumstances) the costs (wages/consulting fees) maybe a legitimate marketing/advertising expense and can be paid for out of the Marketing Fund.

It is important of course to obtain appropriate legal advice in relation to these types of issues.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

Friday, 30 December 2016

Franchising and Premises Leasing

Franchisor as Tenant

Where a franchise system involves use of fixed premises, Franchisors will usually enter into a head lease with the Landlord subject to conditions allowing the Franchisor to offer a sub-lease or licence to occupy to their Franchisees.

This method:
  • allows the Franchisor to retain control of the site in the event of default by the Franchisee;
  • does expose the Franchisor to liability if the Franchisee defaults – the Franchisor would then remain liable to the Landlord for the rent and other obligations;
  • would normally involve an arrangement between the Franchisor and Franchisee (as per the Franchise Agreement and other ancillary documents) whereby the Franchisee provides the bank guarantee/security deposit, takes out relevant insurances, is required to meet rent, outgoings and other obligations under the Lease.
Where the fixed premises are retail in nature, the disclosure regime under the Retail Shop Leases Act 1994 (Qld) must also be complied with (in respect of premises in Queensland).

Franchisee as Tenant

In this case:
  • if the Franchisee were to default under the Lease, the Franchisee would be directly liable to the Landlord for rent and the other obligations under the Lease;
  • the Franchisee would directly provide the security bond/bank guarantee to the Landlord and take out relevant insurances;
  • the rent, outgoings and other obligations under the Lease are the sole responsibility of the Franchisee;
  • make good obligations would also fall solely to the Franchisee.
The trade off for enabling the Franchisee to directly enter into the Lease with the Landlord is the Franchisor loses control of the site.

A way to get around this is for Franchisor to negotiate “step in” clauses with the Landlord.

In the event the Franchisee's lease is terminated, the Franchisor has the option to “step in” to the premises and either continue the franchised business or grant a licence to use the premises to another Franchisee.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2016, All rights reserved.

Franchising and Standard Form Contracts

General Background

The Australian Consumer Law (ACL) is a national, state and territory law which commenced on 1 January 2011. The ACL is contained in Schedule 2 to the Competition and Consumer Act 2010 (CCA).

Part 2-3 of the ACL deals with “Unfair Contract Terms”. In short, this part is designed to provide statutory protections for consumers where those consumers are required to enter into a contract with another party and the consumer has little or no opportunity to negotiate the terms of the contract with the other party. Which could be called a "take it or leave it" contract.

These types of contacts can be caught by the “Standard Form Contracts” provisions under Part 2-3 of the ACL.

Under the ACL (apart from certain exceptions), a contract may be deemed a Standard Form Contract if it exhibits one or more of the following characteristics:
  • one of the parties has all or most of the bargaining power relating to the transaction;
  • the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
  • a party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;
  • a party was not given an effective opportunity to negotiate the terms of the contract; 
  • the terms of the contract did not take into account the specific characteristics of other party or the particular transaction;
  • the regulations say it is a Standard Form Contract.
Examples of Standard Form Contracts might include:
  • employment contracts;
  • hire/lease agreements; and
  • financial agreements.
These types of contracts will typically have a standard body of terms and conditions, with perhaps only a few blank spaces for adding names, addresses, signatures, dates and other relevant variable data.

A particular business may use Standard Form Contracts because that business replicates the contract numerous times to end consumers. Using a standard form maybe more efficient as it minimises the time and cost of producing multiple contracts which are essentially the same.

For businesses who do use Standard Form Contracts, the ACL provides certain consumer protections against terms in those contracts which may be deemed “unfair”.

A term of a contract is likely to be unfair if it:
  • causes a significant imbalance in the parties' rights and obligations arising under the contract; 
  • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and 
  • would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. 
Examples of terms in a Standard Form Contract which may be deemed unfair are those that:
  • allow one party (but not another) to avoid of limit their obligations; 
  • allow one party (but not the other) to terminate the contract; 
  • penalise one party (but not another) for breaching or terminating the contract; 
  • allow one party (but not another) to vary the terms of the contract.
Where the contract is a Standard Form Contract and a particular term is deemed to be unfair by a Court, the offending term will be “void”, although the contract can continue to bind the parties if it is capable of operating without the unfair term.

A Court may also make an order for compensation where a consumer has suffered loss as a result of an unfair term.

Depending on the nature of the contract, the ACCC or ASIC may be able to provide information and guidance for consumers affected by unfair contract terms.


On and from 12 November 2016, the existing unfair contracts provisions for consumers under the ACL will be extended to Standard Form Contracts where:
  • at least one of the parties is a small business (employs less than 20 staff); and
  • the “upfront price payable” under the contract is:
    • no more than $300, 000 in a single year; or
    • $1 million if the contract is for more than 1 year.
An upfront price payable includes any payments to be provided for the supply, sale or grant under the contract that are disclosed at or before the time the contract is entered into.

The new law has been introduced to protect small businesses from unfair terms in business-to-business Standard Form Contracts.

If a small business enters into, varies or renews a Standard Form Contract on or after 12 November 2016, and a term in that Standard Form Contract is deemed to be unfair, that term can be struck out as void.

The franchising industry will likely be one of the industries the subject of the ACCC’s initial compliance activities once the new law commences on 12 November 2016.

From a franchisor’s perspective, given many franchisors will use contracts (eg. Franchise Agreements) that could well fall into the Standard Form Contract definition under the legislation, those franchisors should consider a review of their Franchise Agreements to identify potential unfair terms and make any necessary amendments to those documents.

There is some argument that if a franchisee asks for changes to a Franchise Agreement and the franchisor does enter into legitimate negotiations with the franchisee about such changes, that the Franchise Agreement would not then be classed as a Standard Form Contract (as the parties would have had the opportunity to negotiate the terms). It would then follow that the provisions about Standard Form Contracts under the ACL would not apply.

However, as with any legislative changes, until they are actually tested in the Courts it can be difficult to specifically identify whether a particular contract is a Standard Form Contract or whether a particular clause in a Franchise Agreement might be deemed unfair.

In terms of the "unfairness" issue, as a general assumption the types of clauses which might be caught as "unfair" are clauses which:
  • allow franchisors to terminate the Franchise Agreement without cause;
  • allow franchisors to vary the Franchise Agreement unilaterally;
  • penalise franchisees;
  • require franchisees to provide broad indemnities for franchisors; and
  • restrict the ability of franchisees to take action against the franchisor.
We envisage that key aspects in determining whether a particular clause is unfair will include:
  • the extent to which a franchisee was given an opportunity to negotiate the terms and conditions in the Franchise Agreement before it entered into the agreement; and
  • whether the franchisee obtained independent legal advice before it entered into the agreement.
Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2016, All rights reserved.