Under a franchise agreement, the franchisor grants the franchisee the right to carry on a business using the trademark, logo, and advertising of the franchisor. In exchange, the franchisee pays the franchisor a franchise fee and, in some cases, payment for goods or services, or a percentage of sales. Details of each franchise agreement will vary from case to case. The franchise agreement will usually require the franchisee to comply with an operations manual that sets out how the franchised business is to be run. Although franchising relationships start out with a lot of promise and with both parties wanting the franchisee to succeed in the venture, disputes can arise from time to time.
Franchise agreements are, essentially, contracts. Although there are additional obligations under the Franchising Code of Conduct that aren’t found in many other contracts, the general law of contracts still applies. In the event that the franchisee breaches an essential term of the franchise agreement, or acts in a way that indicates they no longer intend to abide by the contract (known as “repudiation”), the franchisor will often have a right to terminate the agreement, subject to the terms and conditions of the agreement. In addition, the franchisor may also be entitled to damages.
If the franchisee doesn’t comply with its obligations under the franchise agreement, disputes will inevitably arise. Franchise agreements set out the terms and conditions with which the franchisee must comply, including conditions about the payment of fees and royalties, adherence to the franchise system, protection of intellectual property, and quality management, amongst others. Many of those conditions are put in place to protect the value of the franchised brand. If a franchisee does not live up to expectations or does not protect the intellectual property of the brand, it could have a detrimental effect on the rest of the franchise.
Franchisors considering terminating a franchise agreement on the basis of the franchisee’s repudiation should seek legal advice from an experienced franchise dispute lawyer before doing so: if the purported repudiation is later found not to have triggered a right to termination, the franchisor would then be found to have wrongfully terminated the contract, and find themselves owing damages to the franchisee.
Although in most franchise agreements, the franchisor will hold more power than the franchisee, franchisors should be wary of being overly restrictive or oppressive, as that could open them up to increased liability. If a franchise agreement is not drafted appropriately or is extremely prescriptive about the way in which the franchisor is to carry on its day-to-day business, the franchisor could find itself liable, or jointly liable, for the actions or omissions of the franchisee. If the franchisor contributed in some way to loss or damage suffered by a third party, the franchisor can also be found liable, or jointly liable, by the Court.
In circumstances where the franchisor is at fault, there may be more than one franchisee who has suffered loss or damage as a result. In those cases, it may be possible to commence a class action against the franchisor. This would allow the franchisees to pool their resources against the franchisor and minimise their individual legal costs. This strategy can be particularly useful when up against a very large franchisor with significant resources to call upon.
Franchising and franchise disputes can touch on a broad range of legal topics, including:
Whether you are a franchisee or a franchisor, we can assist. Our franchise dispute lawyers have significant knowledge and expertise in this area to help you resolve your franchise dispute and enforce your rights. Our down-to-earth team will guide you through the process to resolution or, where necessary, through litigation.
Simply contact us on 1300 907 335 or complete the enquiry form on this page.
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