Unfair Contracts Legislation in Franchising: Protecting Franchisees from Exploitation
Franchising is a popular business model that allows entrepreneurs to run a business using an established brand, system, and support from a franchisor. It has proven to be an effective way for small business owners to succeed and grow their businesses. However, there have been cases where franchisees have been unfairly treated by their franchisors, leading to disputes and legal battles. This is where unfair contract terms legislation comes into play.
Unfair contracts legislation is designed to protect consumers and small businesses from entering into contracts that contain terms that are unfair, unjust, or oppressive. The purpose of this legislation is to ensure that there is a level playing field between the parties, and that neither party has an unfair advantage over the other.
In the context of franchising, the Franchising Code of Conduct (the Code) governs the relationships between franchisors and franchisees in Australia. The Code was introduced in 1998 and was last updated in 2021. The Code sets out the minimum requirements that franchisors must comply with when dealing with franchisees. One of the key provisions of the Code is the requirement for franchisors to provide a disclosure document to potential franchisees. This document provides important information about the franchise system, the franchisor, and the franchise agreement.
The Code also includes provisions that prohibit franchisors from imposing unfair contract terms on franchisees. These provisions are designed to ensure that franchisees are not exploited by franchisors who use their bargaining power to impose unfair terms on their franchisees.
The unfair contract terms provisions of the Code apply to standard form contracts – that is, contracts where one party has all the bargaining power and the other party has little or no opportunity to negotiate the terms of the contract. Examples of standard form contracts in franchising include franchise agreements and ancillary agreements.
Under the Code, a term in a standard form contract is unfair if it:
– would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
– is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
– would cause financial or other harm to the other party if it were relied on.
If a term in a standard form contract is found to be unfair, it is void and unenforceable. This means that the term cannot be relied on by the party who included it in the contract.
The Code provides franchisees with an avenue to challenge unfair contract terms. Franchisees can seek redress through the Australian Competition and Consumer Commission (ACCC) or through the courts.
In recent years, there have been high-profile cases where franchisors have been found to have breached the Code by including unfair contract terms in their agreements. These cases have highlighted the importance of the unfair contract terms provisions of the Code in protecting franchisees from exploitation.
In conclusion, franchising can be a lucrative and rewarding business model for small business owners. However, it is important that franchisees are protected from being exploited by their franchisors. The unfair contract terms provisions of the Code ensure that franchisees have a level playing field when entering into contracts with their franchisors. Franchisees should be aware of their rights under the Code and seek legal advice if they believe that they have been subjected to unfair contract terms.