What to do if the franchisor isn't fulfilling their end of the bargain
Nov 01, 2016There are certainly a lot of advantages when buying into a franchise model; namely, that you are buying into an established brand/reputation/product/service with proven established systems and support from the franchisor. Generally, it is considered to be less risky than establishing your own business from scratch.
However, things can (and sometimes do) go wrong, over and beyond a franchisee's perhaps unrealistic expectations.
It is not always as easy as just cutting your losses and walking away from the franchisee (which often will result in an immediate termination of the agreement by the franchisor, leaving you with nothing). You may have obligations under the Franchise Agreement which may expose you to a claim by the franchisor for loss and damage arising from your breach of contract.
What you can do
A crucial first step is to approach the franchisor and explain what issues you are having, what you would like the franchisor to do to resolve the issues, and what outcome you would like. Ideally, you should do this in writing - whether or not you talk to the franchisor first and follow it up in writing is up to you.
After putting your concerns in writing, you should follow up with the franchisor to see what the franchisor's view is, and what the franchisor can offer to do to resolve the issues and/or address your concerns.
If you are unable to resolve the issue with the franchisor, then you should take the matter to mediation, which is an informal negotiation between the parties facilitated by an independent third party. For advice about mediating a dispute, you can contact the Office of the Franchising Mediator Advisor (OFMA).
If mediation does not work, or if you are unable to organise a mediation with the franchisor, then you can lodge a written complaint with the Australian Competition & Consumer Commission (ACCC). If the issues affecting the franchisee also concern other franchisees, then the ACCC may be interested in taking action to prevent the franchisor's unlawful conduct continuing.
If you wish to pursue the franchisor for a breach of its obligations under the Franchise Agreement, this will require an analysis of:
- what were the franchisor's obligations under the Franchise Agreement?
- has the franchisor complied with those obligations?
- do you have evidence to support your claim?
- do you have the financial means to support commencing legal proceedings, which may continue for a length of time and involve significant cost, some if not all of which may not be recoverable, depending on the result.
Keep in mind that any further action you make wish to take against the franchisor will involve costs, time, business disruptions and stress to you and your family. A decision to commence any form of court proceedings should not be taken lightly, so it is always our advice that you try to negotiate a resolution to the issues as best as possible - and accept that you may very well need to make some concessions so that the matter can be resolved.
ACCC website
The ACCC website has some good advice regarding ending a franchise agreement, including:
- selling the franchise
- if the franchisor is insolvent
- your rights to terminate before the fixed franchise period ends
- how to renew or extend the fixed franchise period
- resolving franchise disputes
At the end of your fixed franchise period
Under the Franchising Code, you do not have an automatic right to renew or extend your franchise agreement, or enter into a new agreement after the initial term has ended. It all depends on the terms of your actual agreement with the franchisor. The agreement should set out what will happen at the end of the fixed period, and what your rights and responsibilities are.
Contact the Shire Legal team if you have any questions.
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