AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers
4. Other Requirements 4.1 Past-Profitability Requirements
6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Territory restrictions are permitted in Australia, pro - vided they do not lead to a substantial lessening of competition in an overall market (not just the franchise network). Purchase ties are also permitted in Australia, pro - vided they do not lead to a substantial lessening of competition in an overall market (not just the fran - chise network). There is also a restriction on resale price maintenance, meaning that a franchisor cannot require a franchisee to purchase a product and then require them to resell it above a particular amount. Non-compete/restraints are enforceable in Australia, provided they are no more broad than is necessary to protect the franchisor’s legitimate business inter - ests. This is assessed on a case-by-case basis. In some States of Australia, non-compete clauses must be drafted in a cascading manner, as unenforceable aspects must be severable and the balance must be an enforceable restraint. In other States of Australia, there are laws allowing a court to rewrite an otherwise unenforceable clause. 6.2 Exclusive Territories and Competing Businesses Exclusive territories are permitted, subject to compli - ance with Australia’s competition laws. Furthermore, the franchisor is normally entitled to a reasonable restraint that would apply during the term of the franchise agreement and for a period after - wards; this period depends on each particular factual matrix. 6.3 Requiring Franchisees to Purchase Specific Goods and Services Franchisees can be required to purchase specific goods and services from the franchisor or its nominat - ed suppliers, provided that in doing so the franchisor complies with Australian competition laws.
There is no obligation for the franchisor to demonstrate that the business offered under a franchise agreement has operated profitability for any prior period of time, nor is there any requirement for the franchisor to have had other locations in operation prior to the franchise being granted. 5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement There is no minimum or maximum duration for a fran - chise agreement in Australia. The only requirements for duration relate to the termination process (see 5.3 Termination of the Franchise Agreement ). 5.2 Franchise Renewal Franchisees do not have a statutory right to renewal nor to compensation. However, where a franchisor does not offer a renewal of the franchise agreement, the franchisee is relieved of their non-compete and restraint obligations. This means the franchisee can de-brand and continue to trade, provided they do not use any intellectual prop - erty or confidential information belonging to the fran - chisor. 5.3 Termination of the Franchise Agreement The circumstances in which a franchisor can terminate a franchise agreement are highly regulated. Typically, a breach notice and rectification opportunity is the start - ing point, and a franchisor can only safely terminate if the relevant breach is not rectified in that period. The Franchising Code sets out limited circumstances in which a franchisor can terminate on a more trun - cated basis, including solvency issues, criminal con - victions and other similarly serious matters. Franchisees have relatively few termination rights after the initial cooling-off period, which applies immedi - ately after signing the agreement.
14 CHAMBERS.COM
Powered by FlippingBook