You have received a franchise agreement — a dense, franchisor-prepared document that sets the terms of your entire commercial relationship. You may have been told it is non-negotiable. Before you accept that framing, it is worth understanding that Australia's unfair contract terms laws now apply directly to franchise agreements, and that franchisors are prohibited from proposing, using, or relying on terms the law deems unfair. Those laws carry substantial penalties. Knowing which clauses raise the most risk — and what a compliant version of each looks like — puts you in a much stronger position when reviewing what you are about to sign.
A franchise agreement is a standard form contract: it is prepared by the franchisor and presented to franchisees on essentially the same terms across the network. That characteristic is precisely why the unfair contract terms regime, set out in the Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law, applies to it. Since 9 November 2023, proposing, using, or relying on an unfair term in a standard form contract with a small business has been outright prohibited — not merely voidable. The Australian Competition and Consumer Commission (ACCC) has publicly warned franchisors to review and amend their agreements, and has the power to take enforcement action regardless of whether a franchisor is actively trying to enforce a particular clause.
What makes a term "unfair"
The law sets a three-part test. A term is unfair if it: causes a significant imbalance in the parties' rights and obligations; is not reasonably necessary to protect the legitimate interests of the party who would benefit from it; and would cause detriment — financial or otherwise — to the other party if it were applied or relied upon. All three elements must be satisfied. A court considers the contract as a whole, not the clause in isolation, and may look at the extent to which the term is transparent (written in plain language, legible, and brought to the attention of the other party).
The regime applies to you as a franchisee because, since the November 2023 reforms, a "small business" is defined as a business that either employs fewer than 100 people or has an annual turnover of less than $10 million. Almost every franchisee will fall within at least one limb of that definition. The contract value thresholds that previously limited coverage have been removed entirely, so the size or duration of the contract no longer affects whether you are protected.
How the penalties changed in November 2023
Under the pre-reform regime, an unfair term was void and unenforceable, but no financial penalty attached to simply including it in a contract. That changed on 9 November 2023. Proposing or relying on an unfair term is now an offence attracting penalties of up to the greater of $50 million, three times the value of the benefit obtained, or — where the benefit cannot be determined — 30% of the corporation's adjusted annual turnover during the period of the conduct. The ACCC does not need to wait for a franchisor to enforce a clause before taking action; the act of including a prohibited term in the agreement is itself the contravention.
The clauses that most commonly draw scrutiny
Franchise agreements follow a broadly similar structure across most industries. Four types of clause consistently attract ACCC attention and have been the subject of court findings in the unfair contract terms space.
Unilateral variation clauses
A unilateral variation clause allows the franchisor to change the terms of the agreement — or costs you bear under it — without requiring your agreement. These clauses appear routinely in franchise agreements, most often in relation to marketing levies, technology fees, or supplier pricing that the franchisor controls on behalf of the network.
The ACCC's own guidance on unfair contract terms in franchise agreements identifies these clauses as particularly problematic where:
- the franchisee receives no prior notice before a variation takes effect;
- the franchisee has no ability to exit the agreement if they object to the change; and
- the variation right is unlimited in scope, applying to any term rather than a defined category of costs.
A franchisor amending a clause so that variations require reasonable justification and a defined notice period is more likely to survive scrutiny than one that simply reserves the right to vary "at any time." If you are reviewing a franchise agreement, look at exactly which obligations or costs are subject to unilateral change and whether adequate notice and exit rights are provided.
Operations manual references
Most franchise agreements require franchisees to comply with an operations manual. That is generally legitimate — the manual is where day-to-day system standards live. The problem arises when the agreement simultaneously:
- allows the franchisor to vary the manual at will, without restriction on timing, scope, or reason; and
- treats a failure to comply with the varied manual as a breach of the franchise agreement, triggering penalty or termination rights.
In effect, the franchisor can create new obligations for you — potentially costly ones — by updating a document you have no right to negotiate and may have had limited opportunity to review before signing. The Federal Court's findings in ACCC v Fuji Xerox Australia Pty Ltd [2021] FCA 153 highlighted that clauses tying a party's obligations to documents the other party can amend unilaterally are a recognised category of unfairness. For a franchisee, the practical minimum is: the right to receive reasonable written notice of any material manual change, and clarity about when the change takes effect relative to your operational cycle.
Termination rights
Termination clauses determine the circumstances in which each party can bring the agreement to an end. The unfair contract terms issue arises when the franchisor can terminate in a broad range of circumstances — including for minor, technical, or curable breaches — while the franchisee's own right to exit early is heavily constrained or absent.
The Franchising Code of Conduct (the new Code commenced 1 April 2025 and applies to all agreements entered into, renewed, extended, or transferred on or after that date) already imposes some baseline limits on termination, including good faith requirements and notice obligations. However, the Code does not comprehensively balance termination rights between the parties, and a franchise agreement that layers additional, one-sided termination triggers on top of the Code minimum may still attract scrutiny under unfair contract terms law.
Things to look for in a termination clause:
- Whether the franchisor can terminate immediately for a breach that you could reasonably remedy if given time to do so;
- Whether the grounds for immediate termination are proportionate to the severity of the breach;
- Whether your own rights to seek early termination (in defined circumstances) are expressly stated or left entirely to the franchisor's discretion.
A well-drafted termination clause defines each party's exit rights with matching precision. If the agreement gives the franchisor a long list of trigger events but gives you only a cooling-off period and a dispute-resolution pathway, that asymmetry is worth raising before you sign.
Assignment clauses
An assignment clause governs whether, and on what terms, each party can transfer their interest in the agreement to a third party. In franchising, it is common for the franchisor to retain the right to assign the agreement (for example, when selling the franchise network) without seeking the franchisee's consent, while requiring the franchisee to obtain franchisor consent — and meet detailed criteria — before they can sell their franchise business.
The Federal Court in ACCC v Fuji Xerox Australia Pty Ltd found that allowing one party to assign without consent while requiring the other to seek consent is capable of being an unfair term, particularly where the party who must seek consent is carrying the greater commercial risk of the assignment proceeding. In franchising, there are sometimes legitimate reasons why a franchisor would need to assign on short notice — for example, in a network-wide restructure — but the clause should explain those reasons and ideally give the franchisee a right to receive adequate notice of the assignment and its effect on their obligations.
Optional and situational clauses worth reviewing
Beyond the four high-risk categories above, the following clauses are worth checking specifically in the franchise agreement you are reviewing:
- Restraint of trade clauses — if these apply both during the term and for a defined period after termination, check that the geographic scope and duration are genuinely tied to protecting the franchisor's system, not simply preventing you from working in your industry.
- Indemnity clauses — one-sided indemnities that require you to indemnify the franchisor for loss caused by the franchisor's own acts or omissions are a recognised concern under the unfair contract terms framework.
- Liquidated damages clauses — if the agreement specifies a sum payable on termination or breach that bears no reasonable relationship to the franchisor's likely loss, that clause may be challenged.
- Intellectual property reversion — check what happens to any goodwill, customer database, or social media presence you have built if the agreement ends; clauses that vest these automatically in the franchisor with no compensation may carry unfairness risk.
How Artificer Legal can help you review your franchise agreement
A franchise agreement is a long document with interdependent clauses — a variation clause and a breach clause may sit fifteen pages apart but operate as a pair. The legal analysis required is not just whether any single clause looks unfair in isolation; it is whether the agreement, read as a whole, creates a significant and unjustifiable imbalance between your rights and the franchisor's.
At Artificer Legal, our franchise lawyers approach agreement reviews in a structured way:
- We identify every clause that operates asymmetrically — where the franchisor holds a right the franchisee does not — and assess whether a legitimate business reason is apparent on the face of the document or in the franchisor's disclosure document.
- We map variation rights against termination triggers, so you can see exactly how exposed you are if costs increase or manual requirements change.
- We advise you on which clauses are worth negotiating (even in agreements presented as standard form, some franchisors will accept amendments to avoid exposure under unfair contract terms law), and how to frame those requests.
- Where you are the franchisor, we review your template agreement for compliance with both the current Franchising Code of Conduct and the unfair contract terms prohibitions, and draft amendments that reduce your enforcement risk.
The operations manual reference clause
The operations manual reference clause is the one most franchisees underestimate at the time of signing. It is typically buried in a section about system standards, phrased in neutral language, and not connected on its face to costs or termination. Yet it is the mechanism by which a franchisor can, in practice, impose new obligations on you throughout the life of the agreement without your consent and without amending the agreement itself. If only one clause in your franchise agreement receives careful legal attention before you sign, this should be it.
To summarise the key points covered in this article: Australia's unfair contract terms laws have applied directly to franchise agreements since 9 November 2023, with penalties of up to $50 million for corporations that propose or rely on prohibited terms. The small business threshold now covers businesses employing fewer than 100 people or with annual turnover below $10 million, removing the previous contract value limits. The clauses most commonly identified as problematic in franchise agreements are unilateral variation clauses, operations manual references, asymmetric termination rights, and one-sided assignment clauses. The ACCC has publicly warned franchisors to review and amend their agreements, and has enforcement powers that do not depend on a clause being actively enforced. Reviewing your franchise agreement with a lawyer before you sign — not after a dispute arises — is the most practical way to understand what you are agreeing to.