Franchise agreements are designed to create consistency, protect brand value, and establish clear obligations between franchisors and franchisees. When either party fails to meet those obligations, it can lead to significant financial and operational consequences.
Under Australian law, breaches of a franchise agreement may give rise to a range of legal remedies depending on the nature of the breach, the terms of the agreement, and the surrounding circumstances.
This article outlines the common remedies available for breach of a franchise agreement in Australia and the legal considerations franchisors and franchisees should keep in mind.
What Is a Breach of a Franchise Agreement?
A breach occurs when one party fails to comply with its obligations under the franchise agreement.
Common examples include:
A. Failure to pay franchise fees or royalties
B. Failure to follow operational procedures or brand standards
C. Unauthorised use of intellectual property
D. Failure to provide agreed training or support
E. Operating outside an approved territory
F. Misleading or deceptive conduct during the franchise relationship
Some breaches may be considered minor and capable of being remedied quickly, while others may amount to serious or fundamental breaches that justify termination of the agreement.
The Franchising Code of Conduct
Franchise relationships in Australia are regulated by the Franchising Code of Conduct, which is contained in Schedule 1 of the Competition and Consumer (Industry Codes Franchising) Regulation 2024 (Cth), which came into effect on 1 April 2025, replacing the previous 2014 Code.
The Code operates alongside:
A. the Competition and Consumer Act 2010 (Cth)
B. the Australian Consumer Law (ACL)
C. general contract law principles
The Code imposes obligations on both franchisors and franchisees, including duties relating to good faith, disclosure requirements, dispute resolution procedures, and termination rights. Failure to comply with the Code may result in penalties, enforcement action by the Australian Competition and Consumer Commission, and contractual disputes.
Under the 2024 Code, all substantive obligations are classified as civil penalty provisions. Maximum penalties are 600 penalty units per breach, currently $198,000 for individuals and $990,000 for companies per contravention. This represents a significant increase in enforcement exposure compared to the previous Code
Damages
One of the most common remedies for breach of a franchise agreement is damages.
Damages are intended to compensate the affected party for losses suffered as a result of the breach.
For example, a franchisor may seek damages where a franchisee:
A. stops paying royalties
B. damages the reputation of the brand
C. improperly uses confidential information
Similarly, a franchisee may seek damages where a franchisor fails to provide promised support, misrepresents financial projections, or breaches exclusivity arrangements.
The amount recoverable will generally depend on whether the losses were reasonably foreseeable and directly connected to the breach.
Termination of the Franchise Agreement
In some circumstances, a breach may allow the non-breaching party to terminate the franchise agreement.
Termination is often permitted where there has been:
A. a serious breach of the agreement
B. repeated non-compliance
C. insolvency
D. abandonment of the business
- conduct causing serious reputational harm
- a serious contravention of the Fair Work Act 2009 or the Migration Act 1958
However, franchisors must exercise caution before terminating a franchise agreement. The Franchising Code of Conduct contains strict procedural requirements relating to breach notices and opportunities to remedy certain breaches. Failing to follow these requirements may expose the franchisor to legal claims.
For example, a franchisor will generally need to:
A. issue a written notice outlining the breach
B. specify what must be done to remedy the breach
- provide a reasonable timeframe for the breach to be remedied
Short-notice termination (with at least 7 days’ written notice) is available in limited “special circumstances” under the 2024 Code, including insolvency events, conviction for a serious offence, and serious contraventions of the Fair Work Act 2009 or the Migration Act 1958. The 2024 Code removed the ability to terminate with no notice period, what was previously described as “immediate” termination now requires a minimum 7 days’ notice.
Early Termination Compensation
A significant change introduced by the 2024 Code is the entitlement for franchisees to compensation when a franchisor terminates an agreement early for reasons within the franchisor’s control. This applies where the franchisor terminates due to exiting the Australian market, restructuring its franchise network, or changing its distribution model.
In such cases, the franchisor is required to compensate the franchisee for outstanding stock, essential speciality equipment, and branded merchandise purchased as required under the franchise agreement that cannot be repurposed for a similar business. This right applies to agreements entered into, transferred, renewed or extended on or after 1 November 2025.
Injunctions
A court may grant an injunction to prevent a party from continuing certain conduct.
In franchise disputes, injunctions are commonly sought where:
A. a former franchisee continues using branding or intellectual property after termination
B. confidential information is being misused
C. a party breaches restraint of trade obligations
For example, if a former franchisee continues operating under a franchisor’s branding after the agreement ends, the franchisor may seek an urgent injunction to stop the conduct. Injunctions can be particularly important where financial compensation alone would not adequately protect the business or brand.
The 2024 Code restricts the enforceability of post-term non-compete clauses in certain circumstances. Where a franchisee is not in default and the franchisor chooses not to extend or renew the agreement, the Code prohibits restraint of trade provisions operating after the term ends. This limits the scope of injunctive relief available to franchisors in such scenarios.
Account of Profits
In cases involving misuse of intellectual property or confidential information, a court may also order an account of profits. Rather than compensating for losses suffered, this remedy requires the wrongdoer to surrender any profits made as a result of the wrongful conduct.
This is particularly relevant where a former franchisee has profited by using the franchisor’s systems, know-how, or branding without authorisation after the agreement has ended.
Specific Performance
Specific performance is a court order requiring a party to fulfil its contractual obligations. This remedy is less common but may apply where damages are insufficient to address the harm caused by the breach.
For example, a court may order a party to comply with obligations relating to intellectual property transfers, confidentiality obligations, or other critical contractual commitments.
Dispute Resolution Under the Franchising Code
The Franchising Code of Conduct encourages parties to attempt to resolve disputes before commencing court proceedings. Dispute resolution processes may include:
A. negotiation
B. mediation
C. conciliation
D. arbitration in certain circumstances
These processes can often reduce legal costs and preserve commercial relationships. Under the 2024 Code, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has the power to publicly name franchisors who refuse to engage in, or who withdraw from, an agreed alternative dispute resolution process. This “name and shame” mechanism provides a strong incentive for franchisors to participate meaningfully in dispute resolution before resorting to litigation.
Parties should also review the dispute resolution clauses within the franchise agreement itself, as these clauses may impose additional procedural requirements.
Misleading or Deceptive Conduct Claims
In some franchise disputes, remedies may also arise under the Australian Consumer Law. Section 18 of the Australian Consumer Law prohibits misleading or deceptive conduct in trade or commerce.
For example, issues may arise where a franchisor:
A. provides inaccurate earnings forecasts
B. misrepresents the profitability of the business
C. fails to disclose significant operational risks
In these situations, franchisees may seek remedies including damages, compensation orders, or contract-related relief.
The case of ACCC v Ultra Tune Australia Pty Ltd highlighted the importance of compliance with franchising obligations and disclosure requirements under Australian law.
Practical Considerations for Franchisors and Franchisees
When a potential breach arises, both parties should act carefully and obtain legal advice early. Important practical steps include:
A. reviewing the franchise agreement carefully
B. documenting communications and evidence
C. complying with notice requirements
- attempting early dispute resolution where appropriate
- assessing whether the breach is capable of remedy
- being aware of the return on investment obligations under the 2024 Code, which require franchisors to ensure franchisees have a reasonable opportunity to make a return on any investment required under the agreement
Poorly managed disputes can quickly escalate into costly litigation and reputational damage.
Final Thoughts
Franchise agreements are complex commercial arrangements that rely heavily on compliance, consistency, and trust between the parties.
Where a breach occurs, Australian law provides a range of remedies including damages, termination rights, injunctions, and dispute resolution mechanisms. However, the availability of these remedies will depend on the terms of the agreement, the Franchising Code of Conduct, and the specific circumstances of the dispute.
Both franchisors and franchisees should ensure they understand their contractual obligations and seek legal advice promptly if disputes arise.
OpenLegal Services
At OpenLegal, our team can assist with franchise agreement disputes, breach notices, termination rights, and compliance obligations under the Franchising Code of Conduct. We can also advise franchisors and franchisees on dispute resolution, enforcement options, and protecting their commercial interests. To further discuss, please contact us at enquiries@openlegal.com.au or 1300 337 997.
Riya Dhillon, Intern at OpenLegal
