AUSTRALIA Trends and Developments Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers
not applicable, the matter need not be considered”. The judgment goes on to say that the Act does not “codify the values of Australian statute and common law” nor “resolve such difficulties in its application”. The provision articulates “a list of wide-ranging mat - ters to consider when applying these values”. It is the totality of the circumstances relevant to the conduct being considered which dictates if any matter set out in the Act applies. This case confirms that a matter will not be character - ised as unconscionable unless it is “outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience. Some form of moral turpitude remains an important measure of unconscionable conduct”. Vicarious liability Historically, the view was that employees of the fran - chisee were the responsibility of the franchisee alone. In Australia, there has been growing recognition in recent years that franchisors may bear vicarious liabil - ity for the conduct of their franchisees, particularly in relation to obligations owed to franchisee employees. Franchisors should be conducting audit-like activi - ties to monitor what franchisees are doing to comply with employment laws; failing to do so could have significant brand and financial consequences for fran - chisors. Manuals and unilateral variation Historically, manuals were heavily referenced in a fran - chise agreement and were said to be incorporated in the franchise agreement; therefore, adding to or amending the manual would change the terms of the contract. After recent changes to the Franchising Code, the ability of franchisors to make unilateral variations to a franchise agreement is now limited, including restrict - ing the ability to amend the manual that forms part of a franchise agreement. Furthermore, the Franchising Code obliges franchisors to disclose unilateral changes that might occur during the term of the franchise agreement. If a particular
unilateral change is not disclosed, it will impact the franchisor’s ability to make such a change. Considering alternatives to franchising As Australia has arguably become the most regulat - ed franchising environment in the world, some busi - nesses are starting to consider alternative strategies to implementing a franchising strategy in Australia. Many people consider that the environment in Aus - tralia no longer enables a franchisor to have sufficient control over their franchisees due to the regulatory environment restricting contractual protections and prohibiting certain conduct that would historically have occurred to enforce brand standards and sys - tems. Current and prospective franchisors are starting to assess whether franchising is the best option for them, considering: • if they will have obligations to the franchisee’s employees; • if they cannot confidently enforce standards; and • if franchisees can walk away from restraints because they are unfair contract terms or because there has been a decision to move away from a franchise model to a different model and simply take the system knowledge with them. The two key approaches in Australia are as follows. • First, the use of a corporate structure with employ - ees being incentivised through bonuses and employee share plans using both short-term and long-term incentives. The Franchising Code does not apply to this arrangement. • Second, the use of a corporate structure with a number of different classes of shares enabling equity participation for persons who would other - wise be franchisees. The different classes of shares can divide participation in revenues and profits from a company-wide share down to a share of profit from a single shop or busi - ness unit.
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