Previously, an ‘unfair’ contract term could be declared void. However, from 9 November 2023, franchisors are prohibited from entering into standard form contracts with franchisees that contain unfair terms. Franchisors are also prohibited from relying on unfair terms, which have been renewed or varied on or after 9 November 2023. Doing so may attract substantial financial court penalties, now potentially in the millions.

Franchise agreements often contain restraints of trade. The restraints typically apply for a period of time after the franchise ends, and may restrict franchisees from competing with the network or conducting a similar business within a particular geographical area.

Whilst these restraints can be legitimate and important protections for the franchise network, they can also be a major hinderance for franchisees looking to move onto their next venture.

Clause 23 of the Franchising Code of Conduct can be a way for franchisees to avoid the operation of these restraint clauses. However, it has quite a narrow application - and there numerous proactive steps that franchisees must take to obtain the benefit of the exception.

In life, and especially within the context of commercial arrangements, circumstances can arise where despite the best intentions and efforts of all stakeholders, things don’t work out. It can be nobody’s or everybody’s fault.

Franchise relationships are no exception, as was highly publicised in the inquiry into the operation and effectiveness of the Franchising Code of Conduct, which concluded in 2019.

This guide sets out, in brief terms, the options available for those looking to exit a franchise.

The guide assumes that there has been no breach of the franchise agreement by either party, as this will involve different considerations and processes.

The highly-anticipated changes to the Franchising Code of Conduct are now in force.

These changes follow a parliamentary inquiry into the Code, which began in 2018. The inquiry saw many franchisees explain how their franchised business failed, and the consequences on their lives. It also exposed questionable business strategies by some franchisors, and has directly led to at least one enforcement action by the Australian Competition and Consumer Commission.

It is important for both franchisors and franchisees to understand that significant changes to the Code are now in force – many of which involve imposing civil penalties for breach.

This article contains a summary of five core areas that have seen significant change.