Unfair contract terms in franchise agreements: the clauses the ACCC keeps flagging

• Covered: standard form contracts where at least one party employs fewer than 100 people or had turnover under $10 million in its last income year (ACL s23(4)).
• The ACCC considers many franchise agreements are likely to be standard form small business contracts, and a contract alleged to be standard form is presumed to be one unless proven otherwise (ACL s27).
• Penalties for a company: up to the greatest of $50 million, three times the benefit, or 30% of adjusted turnover during the breach period. For an individual: $2.5 million.
• The five clause types flagged in the ACCC's December 2023 review: unilateral variation, withholding or set-off, audit powers, restraints of trade and termination.
• Unfair contract terms are an ACCC priority for 2026–27, with a focus on cancellation terms, including automatic renewals, early termination fees and non-cancellation clauses.

• The contract must be for goods or services, or an interest in land, and must be a standard form contract (ACL s23).
• At least one party must employ fewer than 100 people when the contract is made, or have had turnover under $10 million in its last income year (s23(4)).
• Casual employees count only if employed on a regular and systematic basis, and part-time staff count as a fraction of a full-time equivalent (s23(5)).
• Because only one party needs to qualify, the ACCC considers a significant proportion of franchisees and master franchisees are likely to be protected.
• Terms that define the main subject matter, set the upfront price, or are required or expressly permitted by law are outside the test (s26).
• The prohibitions apply to contracts entered into or renewed, and to terms varied, on or after 9 November 2023.

In July 2023 the ACCC began compliance checks on 10 newer franchisors, from industries including repair and maintenance, education and training, personal services and food retailing, each with 2 to 32 franchisees. The documents were largely compliant with the Franchising Code, but every agreement contained terms the ACCC considered potentially unfair.

1. Unilateral variation (all 10 agreements): the franchisor can change the agreement, the operations manual (7 of 10) or approved product and supplier lists (7 of 10), often at its sole discretion and on short notice.
2. Withholding or set-off (7 of 10): the franchisor can withhold payments owed to you, or set them off against money you owe, even where the amount is disputed or not yet due, without notice, while you have no matching right.
3. Audit powers (all 10): broad discretion to audit your business, sometimes without notice, with you paying the costs. Only 3 agreements limited your liability to the reasonable costs of the audit.
4. Restraints of trade (all 10): 9 had cascading restraint periods ranging from 5 years down to 3 months, and 8 had cascading restraint areas ranging from all of Australia down to 2 kilometres from your site.
5. Termination (all 10): 9 let the franchisor terminate for any breach, however minor; only 2 gave franchisees a matching right to terminate for the franchisor's unremedied breach; and 1 allowed termination without cause.

• The franchisor can change anything 'at its absolute discretion', with no limits on when, how or why.
• Changes take effect within days, and failing to implement them is a breach.
• Default interest on late payments set well above normal business rates.
• Early termination fees that make you pay the remaining service fees for the rest of the term.
• Restraints with long lists of alternative periods and distances, or a buy-out fee to escape them.
• Set-off rights for the franchisor only.
• Uncapped audit, legal or travel costs charged to you.
• A clause declaring that every term is reasonable and necessary. The ACCC says that isn't enough to make a term fair.

• 2016: an ACCC review of selected industries, including franchising, raised concerns about similar terms, which the 2023 checks found were still common.
• 2020: Back In Motion Physiotherapy gave the ACCC a court-enforceable undertaking over a restraint covering 10 km around any of its sites nationally for 12 months, and a buy-out fee of four times annual royalties. It admitted the terms may be unfair and undertook not to rely on them.
• Fujifilm: in proceedings the ACCC began in 2022, the Federal Court declared 38 terms across 11 of Fujifilm Business Innovation Australia's standard form agreements unfair. It isn't a franchise case, but the ACCC cites its lopsided termination clause as a lesson for franchisors.
• December 2023: the ACCC published its franchise review and warned franchisors to remove unfair terms or risk legal action.
• September 2026: after ACCC concerns, a fitness franchisor narrowed its restraints, reduced its late-payment interest rate and removed a clause requiring franchisees to pay the remaining service fees if the agreement ended early. It also amended website content about NDIS funding and its relationship with the National Disability Insurance Agency.
• State and territory fair trading agencies also enforce the Australian Consumer Law and can act on unfair terms.

• The Code bans some terms outright, such as a general release of the franchisor's liability, forcing disputes outside your state, and charging you the franchisor's dispute costs (s39 to s41).
• It limits restraints after a refused renewal or extension (s42 and s67), and the ACCC says restraints must also not be unfair or go beyond what is reasonably necessary.
• The disclosure document must describe the franchisor's one-sided variation rights (item 17) and both sides' rights to end the agreement early (item 17B).
• The good faith obligation governs how each side behaves (s18), while an unfair terms claim looks at the term itself and the contract as a whole (ACL s24(2)).
• An unfair term is void, and the rest of the contract continues if it can operate without that term (ACL s23(1) and (2)).
• Transparency counts: a court must consider whether a term is in plain language, legible, clearly presented and readily available, but the ACCC says notice alone may not stop a term being unfair.

1. Before signing, mark each term that gives the franchisor a right you don't have, and ask for it to be narrowed or balanced.
2. Ask what legitimate interest the term protects. The law presumes a term isn't reasonably necessary to protect the interests of the party it favours unless that party proves otherwise (ACL s24(4)).
3. Have a franchise lawyer review the whole agreement, including documents it incorporates, such as the operations manual.
4. If you have already signed, keep records of how the term is used against you.
5. Raise the issue in writing, and use the Code's dispute process if you can't agree (s72).
6. Report it to the ACCC or your state or territory fair trading agency. The ACCC assesses each report, though it can't act on every one.

• Variation: what can change, with how much notice, and at whose cost?
• Set-off: can the franchisor deduct disputed amounts, and do you have the same right?
• Audits: how often, with what notice, and are the costs you pay capped at a reasonable amount?
• Late payment: what interest rate applies, and how does it compare with normal business rates?
• Restraints: is there one clear period and area, or a ladder of alternatives?
• Termination: can the franchisor end the agreement for minor breaches, and can you end it if the franchisor breaches?
• Early exit: do you owe future fees if the agreement ends early?