By Steve Pynt and Isobel Millward
Australia’s franchising sector is in a period of transformation. With sweeping amendments to the Franchising Code of Conduct (the Code) in 2025, intensified ACCC enforcement activity, and several significant recent judgements, the legal landscape governing franchise relationships is evolving toward greater accountability, transparency and economic fairness.
For franchisors, franchisees and practitioners, understanding these developments is essential as the sector moves into a more demanding compliance environment.
The most substantial changes began on 1 April 2025, when the Code was amended to remove the long‑standing requirement for franchisors to provide a Key Facts Sheet. The reforms also introduced opt‑outs for existing franchisees entering substantially similar agreements, allowing them to waive both the cooling‑off period and the need to receive a fresh Disclosure Document.
A more substantive amendment is the requirement that franchisors must now include in their franchise agreements, compensation for franchisees where the franchisor restructures its network or ceases operating in Australia.
A further and highly significant reform took effect on 1 November 2025. Section 44 of the Code imposes a new duty on franchisors to give franchisees a reasonable opportunity to make a return on their investment.
The ACCC has indicated that this assessment involves a wide range of factors, including the duration and terms of the agreement, the underlying business model, the amount of capital invested, the nature and location of the business, prevailing economic conditions, regulatory settings, competition, the franchisee’s skills and resources, and the level of franchisor support. This obligation is likely to become a central feature of future disputes, particularly where franchisees seek to exit failing systems or challenge the commercial viability of franchisor decisions.
The courts have also been active in clarifying franchisor liability, particularly in relation to workplace law. In Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144, the Full Federal Court confirmed that franchisors may be liable for contraventions committed by franchisee employees where the franchisor knew or reasonably ought to have known that breaches were likely.
Bakers Delight had identified issues during an audit but failed to follow up, and the franchisee ultimately underpaid 140 workers a total of $1.2 million. The decision, grounded in the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth), reinforces that franchisors must maintain active, documenting compliance systems rather than relying on passive oversight. A similar theme emerged in Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576, where the franchisor was fined $1.44 million after underpayments totalling $32,321 were uncovered across multiple outlets.
Together, these cases signal that workplace compliance failures within franchise networks now carry substantial legal and financial consequences for franchisors.
The ACCC has reinforced this trend through its enforcement priorities for 2026–27, confirming that unfair contract terms in small business contracts remain a key focus. In its 2023 franchising report, the ACCC identified several types of franchise agreement provisions that may constitute unfair contract terms, including broad unilateral variation powers, unrestricted changes to approved product and supplier lists, franchisor rights to withhold or set off payments without reciprocal franchisee rights, audit powers imposing inflated interest rates or uncapped costs, and restraint of trade clauses with cascading terms or excessive geographic scope.
With civil penalties now applying to unfair contract terms, franchisors are increasingly undertaking comprehensive agreement reviews to mitigate risk.
Disclosure compliance has also come under sharper scrutiny. The ACCC has begun issuing infringement notices for failures to maintain accurate profiles on the Franchise Disclosure Register, with recent penalties imposed on Luxottica Franchising Australia Pty Ltd ($19,800 in March 2026) and HN Macgregor Franchisor Pty Ltd, the Harvey Norman franchisor ($15,650 in August 2025). These actions demonstrate the regulator’s strict stance on disclosure obligations and its willingness to penalise administrative non‑compliance.
Several recent cases have further refined the boundaries of franchisor conduct, good faith obligations and the meaning of unconscionability. In Netdeen Pty Ltd v Lindfield NSW Pty Ltd [2025] NSWCA 196, Netdeen, the GJ Gardner Homes franchisor, refused to renew a master franchise held by Lindfield.
Lindfield initially succeeded at trial, obtaining $20 million in damages for breach of contract and unconscionable conduct under s 21 of the Australian Consumer Law. However, the NSW Court of Appeal set aside the finding of unconscionability, found the primary judge’s damages assessment flawed, and remitted the matter for partial re‑trial. At the re‑trial, Peden J dismissed all claims.
The case confirms that franchisors may legitimately restructure their networks where decisions are commercially justified and made in good faith, and that unconscionability requires more than tough or commercially adverse outcomes.
In Dirt Devils Cleaning Solutions Pty Ltd v Jim’s Group Pty Ltd [2026] NSWSC 428, the plaintiff alleged misleading conduct relating to territorial restrictions and the charging of client leads. Justice Fagan found no evidentiary basis for the allegations, describing the claims as an “artificial attempt to construct a cause of action.” [71] Additional claims for breach of contract, wrongful termination and unconscionable conduct were also dismissed.
The decision illustrates the courts’ reluctance to entertain franchisee claims unsupported by clear evidence, particularly where contractual terms are explicit.
The most important recent decision is AHG WA (2015) Pty Ltd v Mercedes‑Benz Australia/Pacific Pty Ltd [2025] FCAFC 86, arising from Mercedes‑Benz’s decision to terminate all dealer agreements and transition to an agency model. At first instance, Beach J held that the non‑renewal notices were contractually valid, that the transition was a legitimate business decision, and that the franchisor had not breached its obligation to act in good faith under the Code.
The Full Court dismissed the appeal, confirming that the Code requires fair dealing rather than fair financial outcomes, and that “take it or leave it” negotiations may be permissible commercial tactics. Importantly, the Court acknowledged that in some circumstances franchisor restructuring could be unconscionable.
Taken together, these reforms and decisions mark a decisive shift in Australian franchising law. Franchisors now face heightened obligations across workplace compliance, disclosure, contract fairness and network restructuring. Franchisees benefit from stronger protections, including compensation rights and the forthcoming statutory entitlement to a reasonable opportunity to achieve a return on investment.
Courts are refining the limits of unconscionable conduct and clarifying the scope of good faith obligations, while the ACCC continues to expand its enforcement footprint.
The sector continues to move towards a more transparent, accountable and economically balanced regulatory environment. For legal practitioners, staying across these developments is essential. For franchisors, proactive compliance and clear communication are now critical risk‑management strategies.
And for franchisees, the evolving framework offers greater clarity, stronger rights and a more robust foundation for sustainable participation in Australia’s franchising economy.
