7 July 2023
Franchising has become an increasingly popular business model in Australia, allowing individuals to own and operate their own businesses while benefiting from the established brand and support of a franchisor. However, like any business arrangement, franchising is subject to a range of legal regulations and compliance requirements.
FRANCHISING AGREEMENT
In Australia, the Australian Consumer Law (ACL) provides protection against unfair contract terms. Franchise agreements are not exempt from these regulations, and any contract term deemed unfair may be declared void and unenforceable. The ACL defines unfair terms as those that cause a significant imbalance in the parties’ rights and obligations, are not reasonably necessary, and would cause detriment if enforced.
Before entering into a franchising relationship, franchisors should seek legal advice to understand their rights and responsibilities under the law and engage legal experts to thoroughly review all franchise agreements and ensure their contracts adhere to laws and regulations to avoid legal consequences and potential penalties.
MISLEADING AND DECEPTIVE CONDUCT
Franchisees have the right to rely on the information provided by the Franchisors and can take legal action if they suffer loss or damage due to misleading or deceptive conduct, including pre-contractual representations.
Franchisors are required to provide accurate and truthful information during the pre-contractual stage. They must disclose all material facts and avoid making false or misleading statements that could influence a franchisee’s decision to enter into the
franchising agreement. The courts could still view a pre-contractual representation as misleading and void even though the franchising agreement has expressly excluded it.
Under the ACL, franchisors are prohibited from engaging in misleading or deceptive conduct, which includes making false statements about the franchise opportunity, misrepresenting the financial performance of existing franchisees, or providing inaccurate information about the business prospects.
In order to avoid brand reputational damage, franchisors should contact a lawyer to review all materials, including disclosure document, advertisements and brochures, to ensure truthfulness and no false expectations for potential franchisees.
INTELLECTUAL PROPERTY PROTECTION
Intellectual property (IP) is a crucial asset in franchising, encompassing trademarks, copyrights, and trade secrets. Protecting IP rights is vital for both franchisors and franchisees. Failure to comply with IP regulations can result in legal repercussions and damage business and brand reputations.
Legal experts can assist franchisors to incorporate protective IP clauses in the franchising agreement and develop comprehensive IP strategies, policies and protecting structures to ensure the proper use and protection of their IP.
Franchisees can also obtain legal advice to prevent IP infringement.
PRIVACY AND DATA PROTECTION
Franchisors often collect and handle personal information from franchisees and customers. In Australia, the Privacy Act 1988 (Cth) and the Australian Privacy Principles (APPs) regulate the collection, use, and disclosure of personal information.
In order to have appropriate privacy policies in place, for example, obtain consent for collecting personal data and take necessary measures to protect the information from unauthorised access or disclosure, it is recommended to engage a lawyer to draft the privacy policy.
MARKETING FUND
Many franchise systems in Australia have a marketing fund to support national or regional advertising campaigns. Franchisors are legally required to manage and use the marketing fund in the best interests of franchisees. They must maintain accurate records of all contributions and expenditures, provide regular financial reports to franchisees, and use the funds solely for marketing purposes. Failure to comply with these legal obligations can result in severe consequences for franchisors, including financial penalties, reputational damage, and legal disputes.
Franchisors must establish robust compliance programs, seek legal advice when necessary, and maintain open and transparent communication with franchisees.
Assisted by a legal expert, franchisees can exercise their right to request information about the marketing fund and ensure its proper and reasonable utilisation.
For any further information or queries on the above content, please contact the authors or the key contact below.
The Author
Jean Kallmyr | Lawyer, The IP House Lawyers | t: 0435 799 831 | e: admin@theiphouse.com.au
Key Contact
Claire Darby | Managing Director/Lawyer, The IP House Lawyers | t: 0412 998 951 | e: claire@theiphouse.com.au
Disclaimer
The information and contents of this publication do not constitute any legal or financial advice. This publication is intended only for reference purposes for The IP House Lawyers’ clients and prospective clients.
Image by Freepik