Insights

Rights and obligations of parties in a franchise

Corporate

The ACCC has published guidance to help franchise parties navigate the operational and financial challenges posed by the COVID-19 pandemic.

The guidance considers the rights and obligations of franchisors and franchisees under the Franchising Code of Conduct (the Code), as well as the obligations of franchisors under the Australian Consumer Law (ACL) in the context of the pandemic.

Obligations

In summary, franchise parties continue to have obligations under the Code and their respective franchise agreements, including the obligation to act in good faith. In addition to these requirements, franchisors should also be mindful of their obligations under the ACL, which include refraining from:

  • misleading conduct in dealing with franchisees and potential franchisees;
  • unconscionable conduct in dealing with franchisees; and
  • including unfair contract terms in standard form contracts.

Acting in good faith

The obligation to act in good faith extends to all aspects of the franchising relationship and includes the requirement to act honestly, cooperatively and with due regard to the rights and interests of the other party.

However, the good faith obligation does not require a party to act in the interests of the other party, nor does it prevent a party from acting in its own legitimate commercial interests.

The ACCC website provides guidance for franchise parties to determine if conduct lacks good faith.

Franchise agreements

The ACCC recommends that franchise parties maintain a collaborative, constructive and flexible relationship where, due to the impacts of COVID-19, the parties are unable to meet their obligations under their franchise agreement.

  • As a preliminary step, parties should attempt to communicate with a view to exploring options and resolutions to the challenges they are facing.
  • As every franchise agreement is different, it is also important to carefully review the agreement for any clauses that may allow a party to vary, suspend or be excused from the performance of its contractual obligations. However, the law can be complex, so it is important to seek independent legal advice on these issues.
  • Where parties are unable to resolve their concerns through informal means, formal disputes procedures may then be applied. Information on resolving a franchising dispute is available on the ACCC website.

If you are a franchisor or franchisee and require assistance navigating the impacts of the COVID-19 pandemic, please contact Robert Neely from our Corporate team to discuss your matter.

To keep up to date with the latest guidance published by the ACCC, we recommend regularly checking the ACCC website.

Our team is actively monitoring and considering the implications of legal and regulatory developments in response to the COVID-19 pandemic. You can find our COVID-19 collection here.

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

Key
Contacts

Juliana Hasham

Juliana Hasham

Graduate