Consumer Protection for Franchisees of Failed Franchisors: Is there a Need for Statutory Intervention?

Abstract

The franchise agreement documents a long-term contract-based business relationship between a franchisor as supplier and its franchisee, a business consumer. Under contract law, assumptions are made about parties entering business relationships, and about the basis on which they agree the terms of their contracts. These assumptions are flawed where one of the parties, in this case the franchisee, is in a weaker position and unable to negotiate amendments. Depending on many variables, the impact of the franchisor’s failure on the franchisees ranges from slight to catastrophic. The imbalance of power between a franchisor and its franchisees was redressed to an extent in 1998 by the enactment of amendments to the Trade Practices Act 1974 (Cth). Administrators and liquidators appointed to the failed franchisor are regulated by the Corporations Act 2001 (Cth). Thus it is important to consider whether franchisees could all self-protect against franchisor failure through the franchise agreement or whether this protection can only be achieved through legislation. This article concludes that statutory intervention to protect the franchisee business consumer is the only workable response.