Unfair Contract Terms Used In Franchise Agreements

The ACCC has recently finalised negotiations with a franchisor in the fitness sector. Concerns were raised about potential unfair contract terms in its franchise agreements and potentially misleading website statements about NDIS-funded services.

The ACCC was concerned that some contract terms may have created a significant imbalance between the franchisor and franchisees. This included:

• broad restraints on where and how an ex-franchisee could work after the agreement ended
• a high late-payment interest rate, that we were concerned amounted to a penalty on franchisees, rather than a true assessment of the franchisor’s loss, and
• a term requiring franchisees to pay remaining service fees if the agreement ended early.

Following ACCC engagement, the franchisor amended its franchise agreement to make it fairer for franchisees. They narrowed the restraint provisions, reduced the late-payment interest rate and removed the early termination fee clause. They also removed or amended website content that may have misled consumers about:

• the business’s relationship with the National Disability Insurance Agency
• the availability of NDIS funding for certain services.

This outcome reinforces the ACCC’s expectations that franchisors proactively review contracts to make sure terms are fair and reasonably necessary to protect genuine business interests. They should also make sure public claims about government funding, disability services or affiliations with government agencies are accurate, clear and not misleading.

Background

From 9 November 2023, changes were made to the Australian Consumer Law in standard form contracts with consumers and small businesses. Businesses are banned from proposing, using, or relying on unfair contract terms.

The law prohibit businesses from making false and misleading claims concerning goods or services, including false claims about sponsorship, approval, performance characteristics or affiliations.