ACCC targets franchisors ‘failing to grasp’ unfair contract terms
Every agreement reviewed in compliance checks contained potentially problematic terms despite the watchdog’s repeated warnings, it says.
Franchisors are “failing to grasp” laws against unfair contract terms and now face heavy penalties unless they rectify standard form agreements that burden franchisees, the ACCC warns.
It said every franchising agreement reviewed during a series of targeted compliance checks contained potentially unfair contract terms and published its findings in a report released on Friday.
ACCC deputy chair Mick Keogh said the franchising sector should be “on notice” of its obligations to have fair contracts.
“Franchisors should remove or amend any potentially unfair contract terms immediately, to avoid potential penalties,” he said.
The watchdog’s warning comes after it alerted businesses in September to changes in the Australian Consumer Law taking effect in November.
Under the changes, businesses using unfair contracts could face fines up to $50 million, when previously their only consequence was having the term declared “void” by a judge.
However, Mr Keogh said franchisors were still “failing to grasp the importance of complying with unfair contract terms provisions of the Australian Consumer Law”.
“We will be watching, and those who fail to address the wide-ranging concerns we outline in our report are at risk of legal action by the ACCC and franchisees.”
“We strongly encourage franchisors to use our report to inform a review of all their contract terms, and to seek independent legal advice about their obligations,” Mr Keogh said.
The ACCC’s compliance checks examined the franchising agreements used by 10 franchisors that had from two to more than 30 franchisees.
The report said every agreement contained potentially unfair contract terms.
These included unilateral variation clauses that allowed franchisors to change agreements like operations manuals or approved products and suppliers lists at their discretion.
Other potentially problematic clauses identified by the ACCC were withholding or setting-off payments, audit power clauses, restraint-of-trade clauses and termination clauses.
The ACCC said such clauses were not reasonably necessary to protect franchisors’ legitimate business interests and “exacerbated” power imbalances that already existed between franchisees and franchisors.
It warned the widespread findings of unfair contract terms, despite repeated warnings from the watchdog, might be indicative of “common practices that have become entrenched within the franchising sector.”
“The franchising relationship is often characterised by significant controls on franchisees. We are concerned this power imbalance is exacerbated when franchisors include or rely on unfair contract terms in their franchise agreements,” Mr Keogh said.
A Treasury review to overhaul the Code of Conduct that regulates the $170 million franchising industry has been underway since August, with findings due at the end of the month.
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