Resolving franchise disputes can be complex, stressful, and costly when expectations between franchisors and franchisees are not met or misunderstandings arise. Franchising can be a powerful way to grow a business or step into entrepreneurship with an established brand, however disputes can quickly escalate without a clear understanding of your legal position and early, informed action.
At Allied Legal, we regularly support franchisors and franchisees across Australia in resolving franchise disputes, helping them protect their commercial interests while working towards practical and efficient outcomes.
Disagreements commonly arise over territory rights, marketing fund contributions, supply chain obligations, compliance with operational standards, performance expectations, or changes to the business model.
Step 1: Identify the Scope of the Franchise Dispute
When a disagreement surfaces, the initial response matters. Take time to step back and identify the core issues clearly. Is the dispute about an alleged breach of the franchise agreement, differing interpretations of obligations, external factors affecting performance, or something else?
The Franchising Code of Conduct (the Code), a mandatory industry code under the Competition and Consumer Act 2010 (Cth), sets the framework for fair dealing in franchising. The Code reinforces obligations of good faith, enhances transparency, and establishes a clear pathway for resolving franchise disputes.
Under the Code, both franchisors and franchisees must act in good faith at every stage, including during negotiations, performance of the agreement, and dispute resolution. Good faith involves honesty, cooperation, and not acting arbitrarily or to undermine the other party’s legitimate commercial interests.
Early, structured action aligned with the Code often prevents escalation, reduces costs, and helps preserve valuable business relationships where possible.
Step 2: Assess Whether There Has Been a Breach of Law
When working through resolving franchise disputes, one of the most important turning points is identifying whether the issue is purely contractual or whether it involves a breach of Australian law. This distinction matters because legal breaches can significantly strengthen your position and open up additional remedies beyond what is available under the franchise agreement.
These can include:
Misleading or Deceptive Conduct
If a franchisor made false or misleading representations before you entered the agreement, you may have a claim under the Australian Consumer Law.
Unconscionable Conduct
If one party has acted in a way that is harsh, oppressive, or unfair, this may breach legal protections.
Breach of the Franchising Code
Failure to comply with disclosure, termination, or good faith obligations can result in penalties and legal consequences.
Beyond identifying the legal category, it is important to assess the evidence threshold. Ask what documents, communications, or conduct support the potential breach. This may include pre-contractual emails, disclosure documents, performance reports, or records of support provided (or not provided). A well-supported claim significantly strengthens negotiation leverage and settlement prospects.
It is also important to consider timing and limitation periods. Some claims under Australian Consumer Law and contract law are subject to strict time limits, and delaying action may reduce available remedies or strategic options. Early identification ensures you preserve your rights and avoid procedural disadvantages.
At Allied Legal, we often deal with franchise disputes where the real issue is not immediately obvious on the surface. Once you start unpacking the layers, there are usually multiple moving parts at play, including the Franchising Code of Conduct, Australian Consumer Law, and in many cases, connected shareholder or director arrangements sitting underneath the franchise structure. What might initially look like a straightforward operational disagreement can quickly evolve into a more complex legal and commercial issue once those interconnections are properly reviewed.
Step 3: Review Your Franchise Agreement Against Relevant Documents
Your franchise agreement is the central document governing the relationship. Carefully examine the dispute resolution clause, which must meet the Code’s minimum requirements but may include additional tailored processes. Note any specific notice periods, timelines, or preferred resolution methods.
Cross-reference against the Franchise Disclosure Document (or updated disclosure information), any variations or amendments, operations manuals, and all related records. The Code imposes obligations on franchisors regarding disclosure and conduct, while franchisees are required to meet system standards. Understanding these balanced rights and responsibilities helps you evaluate the strength of your position.
At this stage, we generally recommend engaging experienced commercial lawyers, particularly those with franchising expertise, as the analysis often extends beyond the franchise agreement itself. Depending on the type of conflict, shareholder agreements, director agreements, and any related corporate governance documents may also be relevant and need to be reviewed alongside the Franchising Code of Conduct and disclosure materials. These interconnected arrangements can materially impact rights, decision-making control, and dispute outcomes, so having legal advice ensures the full structure is properly assessed rather than viewed in isolation.
Step 4: Keep a Record of Business Franchise Information
Compile relevant materials such as emails, letters, meeting notes, financial records, sales reports, and records of business franchise information, and track them through a clear chronological timeline of events leading to the dispute. It is also important to capture key communications between franchisors, franchisees, directors, shareholders, and other relevant stakeholders, along with key decisions made, payments (incoming and outgoing), and any operational or financial changes that may have contributed to the dispute.
Well-organised evidence shows compliance with good faith obligations and enhances your business’s credibility. It also assists legal advisers, mediators, or the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in understanding the material facts quickly. Comprehensive record-keeping benefits everyone, as franchisees can highlight specific support needs, while franchisors can demonstrate system-wide compliance efforts.
Step 5: Issue a Formal Notice of Dispute
The Franchising Code of Conduct requires a structured starting point by sending a written “notice of dispute” to the other party. This notice should clearly state:
– The nature of the dispute,
– The outcome you are seeking, and
– The action you believe will resolve the matter.
Deliver it formally (for example, by email with read receipt or registered post) to create a verifiable record. Serving the notice triggers the Code’s protections, including the mutual obligation for both parties to attempt resolution in good faith.
Step 6: Negotiate directly within 21 Days
After the Notice of Dispute is served, parties typically have 21 days to negotiate directly. Approach these discussions collaboratively, focusing on shared business interests and explore practical, mutually beneficial solutions such as adjusted support arrangements, revised timelines, temporary variations to targets, or enhanced communication protocols.
The Code mandates genuine participation in good faith, promotes respect for the franchisor’s need to maintain brand consistency and system integrity, as well as the franchisee’s interest in protecting their investment and earning a reasonable return.
If an agreement is reached, ensure evidence is documented in writing to avoid future misunderstandings.
Step 7: Resolving Franchise Disputes Through Alternative Dispute Resolution (ADR)
If the matter meets a dead-lock in negotiations, either party may refer the dispute to an ADR process, typically mediation or conciliation, through an independent practitioner. The Code encourages for flexible, confidential ADR which is considered generally faster and less expensive than court proceedings, particularly conducting multi-party processes where multiple franchisees share similar concerns.
It is best to enlist the assistance of a neutral ADR practitioner to facilitate discussions aimed at commercial outcomes acceptable to all. If parties cannot agree on a practitioner, either can request the Australian Small Business and Family Ombudsman to appoint one, usually within 14 days. The ASBFEO plays an important role in assisting with access to ADR services and can, in certain cases, publicise a franchisor’s unreasonable refusal to participate, encouraging meaningful engagement.
Mediation often preserves ongoing relationships and keeps sensitive business information private.
Step 8: Seek Specialist Legal Advice Throughout the Process and Reserve Litigation or Arbitration as a Last Resort
Obtaining expert legal advice at the first sign of difficulty, and continuing throughout the dispute, helps clarify your rights, ensures compliance with the Franchising Code of Conduct, and strengthens your overall position. Delaying advice can narrow your options, increase costs, and limit effective resolution pathways.
If Alternative Dispute Resolution (ADR) does not resolve the matter, court proceedings or arbitration may be available. However, Australian courts generally expect parties to have genuinely engaged with the dispute resolution processes required under the Code before commencing formal proceedings. For this reason, litigation should be viewed as a genuine last resort rather than a primary strategy.
Where formal proceedings become unavoidable, preparation is critical. Strong documentary evidence, a clear timeline of events, and a well-defined legal strategy are essential to achieving a favourable outcome.
Preventing and Resolving Franchise Disputes: Building Stronger Franchise Relationships
Resolving franchise disputes effectively is not only about addressing issues as they arise, but also about protecting long-term commercial value, brand reputation, and business continuity within Australia’s franchising sector.
A preventative approach is often the most effective. Regular franchise agreement reviews, clear communication protocols, compliance training, and proactive operational support can significantly reduce the likelihood of disputes escalating in the first place.
At Allied Legal, we consistently see that franchise relationships supported by clear governance frameworks and early legal input are far more likely to resolve issues efficiently and maintain stronger commercial outcomes over time.
This article is provided for general informational and educational purposes only and does not constitute legal advice.
