ACCC warns franchisors: fix unfair contract terms or face court

(Source: Big Stock)

Franchisors should review and amend unfair terms on their standard form contracts or else face legal action, the Australian Competition and Consumer Commission (ACCC) has warned.

The ACCC said contracts are unfair if they cause a significant imbalance in the rights and obligations of the involved parties; are not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and would result in detriment to the other party if implemented or relied upon.

In a newly published report, the ACCC outlined its findings and concerns after it completed targeted franchising compliance checks.

The report provides guidance on complying with the unfair contract terms provisions of the Australian Consumer Law (ACL) after it was amended to introduce penalties beginning in November this year.

ACCC Deputy Chair Mick Keogh said every franchising agreement the consumer watchdog reviewed contained potentially unfair terms.

“This is why we strongly encourage franchisors to use our report to inform a review of all their contract terms, and to seek independent legal advice about their obligations,” said Keogh.

“Franchisors should remove or amend any potentially unfair contract terms immediately, to avoid potential penalties. Franchisors should also not seek to enforce any existing unfair terms.”

Keogh said the ACCC will be monitoring franchisors and those who fail to act on the concerns will be at risk of legal action from the government agency and franchisees.

The ACCC said that when reviewing standard form contracts, franchisors should consider both points of view, include counter-balancing terms, avoid broad terms, meet obligations under the ACL and be transparent.

An individual found to have breached the ACL may face a penalty of up to $2.5 million. 

The maximum financial penalties for businesses are the greatest of $50 million – three times the value of the “reasonably attributable” benefit obtained from the conduct if can be determined, or 30 per cent of adjusted turnover during the breach period if the court cannot determine the benefit.

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