Franchisors

If you are considering expanding your business through franchising, it is crucial to safeguard your intellectual property rights and ensure that your franchise agreements and disclosure documents comply with the Franchising Code of Conduct and the Competition and Consumer Act 2010 (the Australian Consumer Law).

With our extensive industry experience in franchising law across various industries in Queensland, we offer accurate advice on meeting statutory and regulatory requirements for launching your franchise model. Our services include:

• Drafting franchise agreements and franchise disclosure documents that align with the Franchising Code of Conduct and Australian Consumer Law

• Assisting with commercial and retail lease or license arrangements for franchisees operating within Queensland

• Facilitating consent requests from franchisees and preparing documentation for any franchise-related amendments, renewals, transfers, sales, or terminations

• Negotiating with the legal representatives of franchisees to resolve disputes and, if necessary, litigating unresolved conflicts

• Addressing intellectual property matters, including licensing, branding, and social media compliance

• Handling buy-back options

• Assisting with council applications for signage

• All facets of franchising disputes, mediation or litigation

Franchisees

Operating a franchised business offers many advantages for franchisees, including the ability to benefit from an established brand, proven business systems, and use of well known intellectual property. Joining a structured business model with management and marketing support means not having to create everything from scratch or seek out suppliers and manufacturers, as these aspects are already organised by the franchisor.

We can assist franchisees by providing clear explanations in plain English of often complex and overwhelming legal documentation related to the franchise. We will advise on key provisions in franchise agreements, including limitations on dealing with suppliers, restrictions on cash flow, and the potential loss of financial control when funds are remitted to the franchisor rather than directly collected by the franchisee.

Additionally, we pay close attention to crucial aspects of the law, sale of the franchise (including applicable fees and buy-back options), and post-termination obligations like confidentiality, non-disclosure, and non-compete clauses, ensuring careful consideration of these factors during the franchise agreement review process.

Statutory Regulations Regarding Franchise Agreements

Franchise agreements are subject to two main statutory regulations:

1. The Franchising Code of Conduct; and

2. Competition and Consumer Act 2010 (the Australian Consumer Law).

These regulations work together, with the Australian Consumer Law governing certain conduct related to the provision of goods and services in trade or commerce, such as misleading and deceptive conduct, unconscionable conduct, unfair contract terms and the like. On the other hand, The Franchising Code of Conduct imposes specific obligations and requirements on participants within the franchising industry.

Franchise agreements, being common law contracts, are also subject to various basic common law contract rules and principles. Notable contract requirements include considerations regarding pre-contract representations, validity of restrictions and restraint of trade clauses amongst other various areas and concepts.

Franchise Agreements

The Franchising Code of Conduct defines a franchise agreement as a broad agreement in any form, be it written, oral, or implied, involving the following elements:

1. The franchisor granting the franchisee the right to carry on the business of offering, supplying, or distributing goods or services within Australia;

2. A system or marketing plan associated with the franchisor's trademark, advertising, or commercial symbol is incorporated; and

3. The franchisee pays a specified amount to the franchisor or its associate, such as an initial capital investment fee, payment for goods or services, etc.

The Franchising Code provides clarity by specifying certain relationships that do not constitute an actual franchise agreement. These include employer-employee, partnership, landlord-tenant, mortgagor-mortgagee, lender-borrower, and cooperative relationships.

Franchise Disputes

Franchise disputes are not uncommon and can arise due to various reasons. Some common causes of franchise disputes include abandonment of the franchise, misuse of customer information, non-compliance with disclosure requirements, failure to follow franchise standard operating procedures, financial issues, competing business creation during the franchise period, and misrepresentations before entering into the franchise agreement and otherwise.

Legal claims in franchise disputes typically revolve around:

• Misleading and deceptive conduct: false or misleading statements related to goods or services supplied, leading to false impressions or financial promises before entering the franchise

• Unconscionable conduct: statements that are unreasonably unfair and defy good conscience

• Misrepresentation: false statements about material facts influencing a party's decision to enter the contract

• Pyramid selling: a fraudulent business model recruiting members without providing actual investment or product sales

• Deceit: deceptive actions, misleading, or concealing the truth

• Unfair contract provisions: contract provisions unfairly benefiting one party to the detriment of another

• Outstanding money/recovering debts: failing to pay licencing or other fees when they fall due

• Profit manipulation: franchisor and franchisee alteration of profits for person benefit

• Restraints of trade: enforcing and breaching restraints of trade

• Intellectual property: breaching intellectual property licencing arrangements

• Confidential information: breach of confidential information as set out in the agreement

• Abandonment: Abandoning the franchise in part or entirely

• Failing to meet obligations set out in the franchise agreement (some recent examples that we have dealt with include a franchisor failing to invest monies on behalf of customers referred through the franchisee, attempting to sell a franchise whilst not giving the franchisor the first option to purchase and so on)

Franchise Dispute Resolution - Mediation vs Litigation

Franchise disputes can be resolved through mediation or litigation. Mediation involves both parties coming together with an impartial third-party mediator to negotiate and reach an agreement that benefits both sides. Mediation can be cost-effective and offers a chance for parties to find mutually agreeable resolutions.

Litigation, on the other hand, involves legal proceedings and may be necessary if mediation efforts fail. In such cases, legal advice is essential to understand available options and potential legal actions.

It is important to first review the franchise agreement to determine whether there are alternative dispute resolution provisions requiring mediation or arbitration prior to litigation.

Remedies Available in Franchise Disputes

In franchise disputes, several remedies may be sought by the injured party, including damages, equitable compensation, account of profits, and specific performance. The specific remedy awarded depends on the circumstances and losses suffered by the injured party.

Seeking Legal Assistance

RHC Solicitors offer comprehensive assistance with franchise disputes, from providing legal advice and negotiating to representing clients in trials. Whether starting legal proceedings or defending against claims, their team can provide tailored solutions and support. For a free and confidential initial consultation, clients can contact RHC Solicitors to discuss their franchise matter and explore legal rights and options.