Last year, MST Lawyers participated in the Franchising Virtual Roundtable alongside leading international experts. While some time has passed, the insights remain highly relevant for franchisors navigating today’s evolving legal and commercial environment. (See full insights here)
The global franchising sector continues to grow steadily, with forecasts predicting a rise of around 4% this year and as much as 21.5% between 2024 and 2030. Against this backdrop of opportunity, franchisors and franchisees alike face an increasingly complex landscape of regulatory compliance, operational risk, and brand protection challenges.Drawing on the insights of leading franchise lawyers from Australia, New Zealand, Canada, Colombia, and the USA, MST Lawyers shares key takeaways from the recent Franchising 2024 Virtual Roundtable.
1. Australia: Still the Most Regulated Franchise Jurisdiction
Australia continues to be one of the most highly regulated franchise environments globally. Recent developments include:
- Unfair Contract Terms (UCT) Penalties: From 9 November 2023, franchisors risk penalties of up to $50 million for including UCTs in franchise agreements.
- Expanded Small Business Definition: The UCT regime now applies to businesses with up to 100 employees or turnover under $10 million.
- Mandatory Franchise System Registration: All franchise systems must now be registered on a publicly searchable register, with heavy penalties for non-compliance.
Franchisors must ensure their franchise agreements, operations manuals, and related documents fully comply with these obligations. The ACCC has flagged UCT enforcement as a key priority for 2024-2025.
2. Key Differences Between Licensing and Franchising
One common area of confusion is distinguishing between licensing and franchising.
As MST Lawyers Principal, Raynia Theodore, explained:
“Franchising is a form of licensing, but with franchising there is a requirement to comply with the franchisor’s system, standards, and marketing plans. A licence arrangement, by contrast, does not involve such control over the business operations”.
This distinction is critical because franchising is regulated under the Franchising Code of Conduct, and businesses that inadvertently cross the line into franchising without complying with the Code expose themselves to serious legal risk.
3. Building Effective Franchisor-Franchisee Relationships
Long-term success hinges on building relationships based on:
- Clear, thorough contractual arrangements
- Ongoing communication and transparency
- Support and training for franchisees
- Alignment of business values and expectations
Today’s franchisees expect more than rigid top-down control; they demand mutual respect, responsiveness to feedback, and shared innovation.
4. Enforcing Standards and Protecting the Brand
Franchisors must vigilantly protect their brand and system by:
- Registering intellectual property early and broadly (including trademarks and trade dress)
- Implementing rigorous quality control measures
- Monitoring compliance with employment laws to avoid vicarious liability for franchisee underpayments
- Enforcing system standards through inspections, audits, and breach notices
- Failure to protect the brand consistently can lead to system dilution and significant reputational damage.
5. Best Practice Dispute Resolution
The experts agreed: disputes should be addressed early, proactively, and outside of court wherever possible. In Australia, mediation and conciliation are favoured methods under the Franchising Code.Best practice involves:
- Embedding structured dispute resolution processes into franchise agreements
- Promoting early negotiation between the parties
- Using mediation or conciliation before litigation
- Considering independent ombudsman services for larger networks
- Early resolution preserves relationships and reduces costs.
6. Lessons from Ultra Tune: Compliance Is Not Optional
A cautionary tale emerged from the recent case of ACCC v Ultra Tune Australia Pty Ltd (No 3) [2024] FCA 156.Ultra Tune was fined $1.5 million for contempt of court after failing to comply with compliance orders relating to disclosure documents and marketing fund reporting.The case highlights the importance of:
- Prioritising Franchising Code compliance
- Diligently managing external advisors and internal compliance officers
- Never assuming external delays (such as accountant or auditor illness) excuse non-compliance
7. Expanding Internationally: Risks and Opportunities
While international expansion offers tremendous growth potential, it carries significant risks. Key considerations include:
- Securing IP protections in each new country
- Tailoring the business model and customer experience to local markets
- Thoroughly vetting international partners
- Navigating different regulatory environments and cultural expectations
The consensus? Only expand internationally with a full, well-researched plan — not based on opportunistic enquiries alone.
At MST Lawyers, we help franchisors navigate this complex environment. From compliance and system structuring to international expansion strategies, our experienced team ensures you can grow your brand with confidence.If you would like tailored advice about your franchise system, please contact our Franchising team today.
