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BlackBay Insights

  • Writer's pictureVictoria-Jane Otavski

Top 5 Legal Issues Every Franchisee Should Be Aware Of

Franchising is an attractive business model for many entrepreneurs looking to build a successful and profitable venture. However, navigating the legal landscape of franchising can be challenging. In this post, we delve into the top 5 legal issues every franchisee should be aware of to ensure they can make informed decisions and minimize risks.

1. Understanding the Franchise Agreement

The franchise agreement is a legally binding contract between the franchisor and franchisee that outlines the rights and obligations of each party. It covers a broad range of topics that franchisees must understand before committing to the agreement. These include:

  • Initial and ongoing fees: Franchisees should be aware of the initial franchise fee, ongoing royalties, marketing fees, and any other fees they will be required to pay as part of the franchise relationship.

  • Territory and exclusivity: The agreement should clearly define the franchisee's territory and any exclusivity rights they may have within that area.

  • Training and support: Franchisees should understand what training and ongoing support they will receive from the franchisor, as well as any associated costs.

  • Marketing and advertising obligations: The franchise agreement may stipulate the franchisee's responsibilities regarding marketing and advertising efforts and any required contributions to a marketing fund.

  • Termination provisions: Franchisees should be aware of the circumstances under which the agreement can be terminated by either party, as well as any penalties or obligations that may arise from termination.

  • Franchisees should consult with an experienced franchise lawyer to ensure their rights are protected and to negotiate favorable terms in the agreement.

2. Complying with the Franchise Code of Conduct

In Australia, the Franchising Code of Conduct is a mandatory industry code that governs the conduct of franchisors and franchisees. The Code sets out various disclosure and transparency requirements, including:

  • Providing a franchise disclosure document: This document contains essential information about the franchisor and the franchise system, which must be provided to prospective franchisees at least 14 days before entering into a franchise agreement.

  • Mandatory cooling-off period: Franchisees have a seven-day cooling-off period after signing the franchise agreement, during which they can change their mind and receive a refund of most of the fees paid.

  • Dispute resolution mechanisms: The Code requires franchisors to provide a dispute resolution process, which typically involves mediation as a first step.

  • Franchise parties must familiarize themselves with the Code's requirements and ensure they comply to avoid potential penalties and legal disputes.

3. Protecting Intellectual Property Rights

One of the key benefits of a franchise is the right to use the franchisor's intellectual property, such as trademarks, trade names, logos, and business systems. To ensure compliance and protect these valuable assets, franchisees should:

  • Follow the franchisor's guidelines on proper usage of intellectual property, as outlined in the franchise agreement.

  • Monitor their own use of the franchisor's intellectual property to avoid inadvertent infringement.

  • Register any new intellectual property they develop during the course of operating their franchise, such as unique product designs or innovative marketing strategies.

4. Employment Law Compliance

Franchisees must be aware of their obligations as employers under Australian employment laws, which cover a wide range of areas, including but not limited to:

  • Minimum wage and award rates: Ensuring employees are paid at least the applicable minimum wage or award rate.

  • Leave entitlements: Providing employees with appropriate leave entitlements, such as annual leave, personal leave, and parental leave.

  • Workplace safety: Maintaining a safe work environment and adhering to occupational health and safety regulations.

  • Anti-discrimination and equal opportunity: Ensuring fair treatment of employees and avoiding unlawful discrimination in the workplace.

Failing to comply with employment laws can lead to significant penalties, legal disputes, and reputational damage. Franchisees should consult with an employment lawyer or human resources professional to ensure they are aware of and meet their obligations under Australian employment law.

5. Lease Negotiations and Premises Compliance

For many franchise businesses, securing suitable premises is a critical aspect of success. Franchisees should be aware of the following issues when negotiating a lease for their franchise location:

  • Lease terms and conditions: Franchisees should carefully review and negotiate lease terms, such as rent, lease duration, renewal options, and maintenance responsibilities, to ensure they align with their business plans and the franchise agreement.

  • Compliance with franchisor's specifications: The premises must meet the franchisor's requirements regarding size, layout, design, and branding. Franchisees should work closely with the franchisor to ensure the chosen location complies with these specifications.

  • Compliance with local regulations: Franchisees must ensure their premises comply with all relevant local laws and regulations, such as zoning, health and safety, and accessibility requirements.

Seeking legal advice from a lawyer experienced in commercial leasing and franchise law can help franchisees navigate these complex issues and secure a suitable location for their business.

Being aware of the top legal issues in franchising is essential for every franchisee to minimize risks and maximize the success of their venture. By understanding and addressing these legal concerns, franchisees can make informed decisions, protect their interests, and build a thriving franchise business. BlackBay Lawyers will be happy to assist you with your franchise business.


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