It’s a question we get all the time — usually phrased something like:
“It’s just a licence agreement… so it’s not a franchise, right?”
Short answer: not necessarily.
Longer answer (and the one that matters in Australia):
whether something is a “franchise” has very little to do with what you call it — and everything to do with whether it meets the statutory definition in the Franchising Code.
From a franchise lawyer’s perspective, this is one of the most common (and costly) misunderstandings we see.
The dictionary definition (and why it doesn’t help much)
If you go to a standard dictionary, a franchise is typically described as something along the lines of:
a right granted to an individual or group to market a company’s goods or services in a particular territory.
That’s fine as a starting point. It captures the concept.
But legally — and this is where a franchise lawyer will focus — that is not the test in Australia.
The real test: the Franchising Code
In Australia, whether you have a franchise is determined by section 7 of the Franchising Code of Conduct.
That section provides:
A franchise agreement is an agreement (written, oral or implied) where:
(a) a franchisor grants a right to carry on a business under a system or marketing plan;
(b) the business is associated with the franchisor’s trade mark or branding; and
(c) the franchisee pays (or agrees to pay) a fee before starting or continuing the business.
There are some exclusions and clarifications, but that’s the core of it.
So let’s break that down — in the way a franchise lawyer would analyse it in practice.
Element 1: There is an agreement (of any kind)
This often surprises people.
The Code is explicit — a franchise agreement can be:
- written;
- oral; or
- implied
That means:
you don’t need a formal “franchise agreement” document for the Code to apply.
From a franchise lawyer’s perspective, this is critical — because it means you can unintentionally create a franchise relationship without ever documenting it properly.
Element 2: A system or marketing plan
This is usually where things start to look “franchise-like”.
The test is whether the business is conducted under a system or marketing plan that is:
- substantially determined, controlled or suggested by the franchisor.
This does not require:
- total control; or
- a detailed operations manual
It can be enough that the franchisor:
- sets pricing or service models;
- prescribes branding or marketing approach;
- dictates how services are delivered; or
- otherwise shapes how the business operates.
In our experience as franchise lawyers, this limb is triggered far more easily than most clients expect.
Element 3: Branding connection
The business must be:
substantially or materially associated with a trade mark, brand or commercial symbol
This is usually straightforward.
If the operator is:
- using your brand;
- holding themselves out as part of your network; or
- benefiting from your goodwill
…this element is almost always satisfied.
Again, from a franchise lawyer’s perspective, this is rarely the point of contention — it is usually clearly met.
Element 4: A fee is paid
The final limb is often misunderstood.
The Code requires that the franchisee:
pays, or agrees to pay, an amount before starting or continuing the business
Importantly, this is broad.
It can include:
- upfront fees;
- royalties;
- training fees;
- payments for goods or services;
- percentage-based fees
There are some carve-outs (for example, genuine wholesale supply), but in most commercial arrangements, this element is not difficult to satisfy.
Putting it together
If you have:
- a system or marketing plan,
- branding, and
- a fee…
then you are very likely within the definition.
Which brings us to the practical reality.
If it looks like a duck…
We often say to clients:
if it looks like a duck and quacks like a duck, it’s probably a duck.
The same applies here.
If your arrangement:
- walks like a franchise;
- operates like a franchise; and
- feels like a franchise
then calling it something else won’t change the outcome.
Any experienced franchise lawyer will tell you — labels are irrelevant.
“But we called it a licence / distribution agreement…”
This is the trap.
We regularly see documents labelled:
- licence agreements
- distribution agreements
- contractor agreements
- partnership-style arrangements
…which, when properly analysed (as a franchise lawyer would), clearly meet the definition of a franchise.
And the consequence is important:
the Franchising Code applies automatically
You don’t get to opt out.
Why this matters
If the Code applies, you are dealing with:
- mandatory disclosure obligations
- cooling off rights
- good faith obligations
- restrictions on termination
- significant penalties for non-compliance
In other words:
a completely different regulatory environment
This is often where clients come to a franchise lawyer after the fact — once the structure is already in place — which is not the ideal time to be dealing with it.
Final thought
The key takeaway is simple:
classification is determined by substance, not labels
If you are structuring a network, rolling out licences, or building a branded system, it is worth stepping back and asking:
are we actually creating a franchise?
Because if you are, the Code will apply — whether you intended it to or not.
And from a franchise lawyer’s perspective, it is far better to structure it correctly upfront than to retrofit compliance later.