Posted by Elizabeth Gore-Jones
on 4 November 2020
Unfair Restraint of Trade struck down
The Back In Motion Physiotherapy Franchise Agreements contained a clause preventing an ex-franchisee from competing within 10 kms of any Back In Motion Physiotherapy franchise for 12 months after the franchise agreement came to an end.
The ACCC Deputy Chair Mick Keogh said that the effect of the clause was that former franchisees would not be able to operate in many metropolitan areas of Australia because there were so many Back In Motion Physiotherapy franchise outlets in those locations.
The ACCC stated that they were concerned that the clause would cause detriment to franchisees seeking to exit the franchise.
The franchise agreement also enabled the franchisee to pay a "buyout fee" which was equal to 4 times the annual royalty fees to avoid the restraint of trade being enforced against them.
The franchisor admitted that the restraint of trade and buyout terms may be "unfair" in accordance with the unfair contract terms legislation.
The franchisor has undertaken not to enforce the restraint of trade and buyout fee terms in future for franchisees who have left the group in the last 12 months. It will also not include those terms in future franchise agreements.
The ACCC have indicated that franchisors have a stronger bargaining position in their dealings with franchisees and they will investigate and take action against those franchisors if they believe the franchise agreements contain unfair contract terms.
A further clause which restricted franchisees for 9 months from actively soliciting a client that they knew had been a client of any Back In Motion Physiotherapy franchise located within 10 kilometres of the former franchisee is still enforceable.
Unfair contract terms
If a franchisee or group of franchisees believe that terms within a franchise agreement are unfair contract terms then they can make an application to the court seeking an order that they are not enforceable.
Until such order is made the clauses will continue to be enforceable.
Lesson
It is important to draft franchise agreements with a view to avoiding unfair contract terms. However, if a franchisee believes an unfair contract term has been included in a franchise agreement then it must seek an order of the court otherwise it will remain binding.
