Is Your Franchise Agreement Fair? The ACCC’s Latest Enforcement Action Is a Warning to Franchisors
A recent outcome from the Australian Competition and Consumer Commission (ACCC) is a timely reminder to Franchisors that clauses which have sat in franchise agreements for years can still attract regulatory attention. On 1 September 2026, the ACCC announced that a franchisor in the fitness sector had amended its franchise agreement after the ACCC raised concerns that several of its terms might be unfair.[1]
The ACCC did not name the franchisor, and the matter was resolved by negotiation rather than in court.[2] However, with penalties for unfair contract terms now reaching up to $100,000,000.00 for companies, the message to the franchising sector is clear: review your agreement before the regulator does.
The Three Clauses in the Spotlight
The ACCC was concerned that three terms may have tipped the balance too far in the franchisor’s favour:[3]
- Restraints: limits on where and how former franchisees could work after leaving the system.
- Late-Payment Interest: a high interest rate on overdue amounts, which looked more like a punishment than a fair reflection of the franchisor’s actual loss.
- Early Exit Fees: a requirement for franchisees to keep paying service fees for the rest of the term if the agreement ended early.
In response, the franchisor narrowed its restraints, lowered its interest rate and removed the early exit fee altogether.[4]
What Makes a Term “Unfair”?
Australian law protects small businesses from unfair terms in “standard form” contracts, being contracts prepared by one side and offered largely on a take-it-or-leave-it basis.[5] A business is generally protected if it has fewer than 100 employees or a turnover of less than $10,000,000.00 a year.[6] The ACCC says franchise agreements are commonly standard form contracts, even where a franchisee negotiates a few minor changes, and the law assumes a contract is standard form unless the business that prepared it can prove otherwise.[7]
A term may be unfair if all three of the following apply:[8]
- it creates a significant imbalance between the parties’ rights and obligations;
- it goes further than reasonably needed to protect the business that benefits from it; and
- it would cause the other party financial or other harm if relied on.
An unfair term is “void”, meaning it cannot be enforced, although the rest of the contract will usually continue to apply.[9] More importantly, since 9 November 2023 it has been against the law to propose, use or rely on an unfair term.[10] For conduct on or after 28 March 2026, a company can face a penalty of up to $100,000,000.00, three times the benefit it gained, or 30% of its turnover during the breach period, whichever is greatest.[11]
Restraints: How Far Is Too Far?
A “restraint of trade” stops a former franchisee from competing with the franchise for a set time and within a set area. There is no fixed safe distance or time period. The real question is whether the restraint goes further than needed to protect the franchisor’s genuine interests, such as its goodwill, confidential information and network.[12]
This is not the first time the ACCC has looked closely at restraints. In a December 2023 review of 10 franchise agreements, it found a restraint in every one. Nine set out a sliding scale of time periods, from five years down to three months, and eight did the same for areas, ranging from the whole of Australia down to two kilometres. The ACCC said restraints broader than needed are likely to be unfair.[13]
In the latest matter, the ACCC focused on restraints limiting where and how former franchisees could work.[14] This is particularly relevant in sectors such as fitness and health, where franchisees are often qualified practitioners.
Late-Payment Interest: Compensation, Not Punishment
Charging interest on overdue amounts is not a problem in itself. The problem is charging too much. The ACCC was concerned that the fitness franchisor’s rate was more of a punishment than a fair reflection of its actual loss.[15] One example the ACCC gives of a potentially unfair term is a term that penalises only one side for breaching or ending the contract.[16] Separately, the courts may refuse to enforce a payment that is out of all proportion to the interest it is meant to protect.[17]
Early Exit Fees: Paying for Nothing?
The early exit fee was the one term the franchisor removed entirely, rather than just softening it.[18] A clause of this kind charges the franchisee for services they will no longer receive, for the rest of the term, regardless of the reason the agreement ended prematurely. In its 2023 review, the ACCC also found that only two of the ten agreements gave franchisees the same right to end the agreement as the franchisor.[19]
This does not mean a franchisor can never recover its losses when a franchisee walks away. However, an automatic “pay out the rest of the term” clause is now a clear risk.
The New Franchising Code Raises the Bar
The ACCC’s action also needs to be read alongside the new Franchising Code, which came into force on 1 April 2025, with certain rules starting on 1 November 2025.[20] Several of the changes cover the same ground:
- Restraints on Non-Renewal: in some cases a franchisor cannot include or enforce a restraint once the agreement ends, including where the franchisee properly asked to renew, was not in serious breach, was refused, and received little or no compensation for goodwill.[21]
- A Fair Chance to Make a Return: agreements entered into, renewed, extended or transferred on or after 1 November 2025 must give franchisees a reasonable opportunity to earn a return on any investment the franchisor requires them to make.[22]
- Compensation if the Franchisor Pulls Out: from 1 November 2025, agreements must provide compensation if the franchisor leaves the Australian market, scales back its network or changes how it distributes in Australia.[23]
- Franchisees Can Ask to Exit: a franchisee can ask to end the agreement at any time, and the franchisor must give a proper written response within 28 days, although this is not an automatic right to leave.[24]
Importantly, the Code and the unfair contract terms laws work side by side. Complying with one does not mean you comply with the other.[25]
What About Existing Agreements?
The unfair contract terms rules introduced on 9 November 2023 apply to standard form contracts made or renewed on or after that date. Where an existing contract is varied after 9 November 2023, the new rules apply to any term that is varied or added from the date of the variation. Importantly, however, the new rules for determining whether a contract is a standard form contract apply to the contract as a whole. This means that a term varied or added to an older franchise agreement may be subject to the new regime, even though the other unchanged terms are not. If that varied or added term is unfair, proposing, using or relying on it is against the law and can attract substantial penalties.[26]
Even where a franchise agreement predates 9 November 2023 and has not been renewed or amended, an unfair restraint or early exit fee is void and cannot be enforced if the agreement falls within the pre-existing unfair contract terms laws.[27]
The new Code generally applies to agreements entered into, extended, renewed or transferred from 1 April 2025, with the old Code continuing to apply to agreements already in place on that date.[28]
The Takeaway for Franchisors
At IP Partnership Lawyers we act for many franchisors across a wide range of industries. This matter illustrates that the ACCC is actively reviewing franchise agreements, and that clauses which were once common can now carry significant commercial risk.
For franchisors, the lessons are clear:
- Review Your Restraints: make sure the area, time period and activities covered are no wider than needed to protect your network, and that your agreement reflects the new Code’s rules on non-renewal.
- Check Your Fees and Interest: late-payment interest should reflect your genuine loss, and any automatic payment of future fees or royalties on early termination should be reconsidered.
- Look Beyond the Headline Clauses: The ACCC’s 2023 review also raised concerns about unilateral variation rights, set-off rights, audit powers and one-sided termination rights.[29] These should be reviewed at the same time.
- Update Your Precedent for the New Code: agreements entered into, renewed, extended or transferred on or after 1 November 2025 must address return on investment and compensation if the franchisor withdraws from the market.[30]
IP Partnership Lawyers have specialised in Intellectual Property Law, Franchise Law and Commercial Law since 1995, and one of our lawyers would be pleased to speak with you if you have any queries about reviewing your Franchise Agreement or Disclosure Document, or bringing your franchise system into line with the new Franchising Code.
[1] Australian Competition and Consumer Commission, ‘Unfair Contract Terms Used in Franchise Agreements’ (Media Update, 1 September 2026) <https://www.accc.gov.au/about-us/news/media-updates/unfair-contract-terms-used-in-franchise-agreements>.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5]Competition and Consumer Act 2010 (Cth) sch 2 pt 2-3 (‘Australian Consumer Law’); Australian Competition and Consumer Commission, ‘Contracts’ (Web Page) <https://www.accc.gov.au/business/selling-products-and-services/contracts>.
[6] Australian Competition and Consumer Commission, ‘Contracts’ (n 5); Australian Competition and Consumer Commission, Unfair Contract Terms in Franchise Agreements (Report, December 2023) 1 <https://www.accc.gov.au/system/files/unfair-contract-terms-franchise-agreements.pdf>; Australian Consumer Law s 23.
[7] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (Web Page, 12 July 2026) <https://www.accc.gov.au/business/industry-codes/franchising-code-of-conduct/the-franchise-agreement>; Australian Competition and Consumer Commission, ‘Contracts’ (n 5); Australian Consumer Law s 27.
[8] Australian Competition and Consumer Commission, ‘Contracts’ (n 5); Australian Consumer Law s 24.
[9] Australian Competition and Consumer Commission, ‘Contracts’ (n 5).
[10] Australian Competition and Consumer Commission, ‘Unfair Contract Terms Used in Franchise Agreements’ (n 1); Australian Competition and Consumer Commission, ‘Contracts’ (n 5).
[11] Australian Competition and Consumer Commission, ‘Fines and Penalties’ (Web Page) <https://www.accc.gov.au/business/compliance-and-enforcement/fines-and-penalties>.
[12] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7).
[13] Australian Competition and Consumer Commission, Unfair Contract Terms in Franchise Agreements (n 6) 10–11.
[14] Australian Competition and Consumer Commission, ‘Unfair Contract Terms Used in Franchise Agreements’ (n 1).
[15] Ibid.
[16] Australian Competition and Consumer Commission, ‘Contracts’ (n 5); Australian Consumer Law s 25.
[17] See Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525.
[18] Australian Competition and Consumer Commission, ‘Unfair Contract Terms Used in Franchise Agreements’ (n 1).
[19] Australian Competition and Consumer Commission, Unfair Contract Terms in Franchise Agreements (n 6) 12–13.
[20] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7); Australian Competition and Consumer Commission, ‘Franchising Code of Conduct’ (Web Page) <https://www.accc.gov.au/business/industry-codes/franchising-code-of-conduct>.
[21]Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (Cth) ss 42, 67 (‘Franchising Code’); Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7).
[22]Franchising Code s 44; Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7).
[23]Franchising Code s 43; Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7).
[24]Franchising Code s 54; Australian Competition and Consumer Commission, ‘Ending a Franchise Agreement’ (Web Page) <https://www.accc.gov.au/business/industry-codes/franchising-code-of-conduct/ending-a-franchise-agreement>.
[25] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7).
[26] Ibid.
[27] Australian Competition and Consumer Commission, ‘Unfair Contract Terms Used in Franchise Agreements’ (n 1); Australian Competition and Consumer Commission, ‘Contracts’ (n 5).
[28] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7); Franchising Code ss 97–8.
[29] Australian Competition and Consumer Commission, Unfair Contract Terms in Franchise Agreements (n 6) 4–13.
[30] Australian Competition and Consumer Commission, ‘The Franchise Agreement’ (n 7); Franchising Code ss 43–4.
