Franchise Law (WA)
A franchise agreement exists where a business owner (the franchisor) grants to another party (the franchisee) the right to replicate their business model and to carry on an independent outlet under their trademarked business name. This page deals with franchise agreements in Western Australia.
Legislation
The practice of franchising in Western Australia is regulated via the Australian Competition and Consumer Commission (the ACCC) under the federal Australian Consumer Law and under the West Australia Competition and Consumer Act 2010 and the Competition and Consumer (Industry Codes – Franchising) Regulations 2014.
Franchising Code of Conduct
The Competition and Consumer Regulations contain the Franchising Code of Conduct, which sets out industry standards relating to disclosure of information, the terms of the franchise agreement and dispute resolution.
Starting a franchise
When a franchise agreement is formed, the franchisee generally pays a fee to the franchisor in return for permission to market and sell their services and products. The franchisee is also generally required to pay ongoing royalties to the franchisor and agrees to implement set procedures, and to marketing and management techniques.
A franchisee should assess a prospective franchising opportunity thoroughly before signing the franchise agreement. Some of the matters that franchisees need to consider are:
- taxation implications;
- upfront and ongoing franchise fees and royalties;
- the use of intellectual property, copyrights, trademarks and the duration of use;
- the history of the franchise, including ensuring that the franchisor is not engaging in ‘churning’. This is where a franchisor repeatedly turns over ownership of a particular franchise;
- commercial leasing requirements and the suitability of the proposed premises.
- whether there are renewal options at the end of the lease, and if so, whether fees will rise by an acceptable level.
Franchisors’ disclosure obligations
Under the Franchising Code of Conduct, franchisors are required to provide to prospective franchisees copies of:
- the Franchising Code of Conduct
- the Franchising Agreement
- the Disclosure Documents
The Disclosure Documents set out information about the franchise which the franchisee would not be able to obtain any other way.
The franchisor is required to provide these documents 14 days before the agreement is signed or non-refundable payments are made.
Product pricing and sourcing
Under the Franchising Code of Conduct, a franchisor is not entitled to set prices for the sale of goods or provision of services by the franchisee, including minimum sale prices. Although the franchisor is able to provide a pricing guide, the franchisee has complete discretion in their pricing practices.
The Franchising Code of Conduct states that a franchise agreement must not stipulate that the franchisee must source products from a particular supplier (other than itself or a related company). When a franchisor makes a condition like this, it is engaging in ‘third line forcing’, which is a breach of the Franchising Code of Conduct.
However, where a franchisor requires that the franchisee source products from itself or from a related company, it is not in breach of the Franchising Code of Conduct provided that the arrangement is not designed to (and does not), substantially reduce competition.
How are disputes resolved?
When a dispute between a franchisor and franchisee arises, the first step towards resolution is mediation or some other form of alternative dispute resolution (ADR). Many franchise agreements set out the type of dispute resolution to be attempted by parties in the event of a dispute. If ADR is requested, both parties are obliged to participate and make genuine attempts to resolve the issue.
Where ADR is unsuccessful, parties should seek legal advice about commencing legal proceedings. Where a breach of the Franchising Code of Conduct has occurred, the matter can be referred to the ACCC for investigation.
Breaches of the Franchising Code of Conduct
The ACCC has the power to investigate alleged breaches of the Franchising Code of Conduct and to pursue legal proceedings where necessary.
Where a complaint of a breach is made, the ACCC may commence legal proceedings following an investigation.
If the breach is proved, the court may order a range of remedies, including issuing an injunction, awarding damages or compensation, setting aside contracts or varying their terms, or ordering corrective advertising.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.
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