The ACCC has provided franchisors with another useful indication of how it is approaching unfair contract terms in franchise agreements.
On 1 September 2026, the ACCC announced that it had concluded negotiations with an unnamed fitness-sector franchisor after raising concerns about three types of provisions in its standard-form franchise agreement:
- broad post-termination restraints affecting where and how a former franchisee could work;
- a high interest rate applying to late payments; and
- an early termination provision requiring the franchisee to pay the service fees that would otherwise have been payable for the balance of the term.
Following the ACCC’s involvement, the franchisor narrowed its restraints, reduced the interest rate and removed the early termination fee provision.
Does this mean those clauses are automatically unfair?
No.
The ACCC’s announcement records a negotiated compliance outcome. It is not a court decision, the franchisor was not identified and the precise contractual wording has not been published. Only a court can finally determine whether a particular term is unfair.
That distinction matters because the unfair contract terms regime remains a relatively grey area. Whether a clause is unfair requires consideration of the particular wording, the agreement as a whole, the legitimate interests being protected and the detriment that may be caused to the franchisee.
At Magnolia Legal, we are always mindful of unfair contract term risks when preparing and reviewing franchise agreements. However, regulatory action of this kind remains important because it gives franchisors practical guidance about the clauses presently attracting the ACCC’s attention and how the regulator expects those concerns to be addressed.
What should franchisors review?
1. Post-termination restraints
A restraint is not automatically unfair merely because it restricts a former franchisee from competing. Franchisors have legitimate interests in protecting their confidential information, customer relationships, goodwill and franchise network.
The concern arises where the restraint goes further than reasonably necessary—for example, by restricting an unnecessarily broad range of work, applying across an excessive geographic area or continuing for an excessive period.
Cascading restraints also warrant care. Although commonly used to improve enforceability under restraint-of-trade law, numerous overlapping periods, areas and prohibited activities may make the franchisee’s actual obligations difficult to understand. The ACCC has previously indicated that this lack of transparency can itself contribute to unfairness.
Franchisors should therefore consider whether their restraints can be narrowed so that they clearly target the competitive activity and legitimate interests requiring protection.
2. Interest on late payments
The ACCC was concerned that the interest rate in this agreement was so high that it operated as a penalty rather than reflecting a genuine assessment of the franchisor’s loss arising from late payment. The franchisor agreed to reduce the rate.
This does not mean that default interest must be removed altogether. A franchisor has a legitimate interest in encouraging timely payment and recovering the financial and administrative consequences of a default. However, the selected rate should be commercially defensible and proportionate to those consequences—not simply a very high rate designed to punish non-compliance.
3. Payment of future service fees following early termination
The agreement also required the franchisee to pay the remaining service fees that would have become payable had the agreement continued for its full term. Following the ACCC’s intervention, that clause was removed.
This type of provision is particularly exposed where it requires automatic payment of all future fees without considering the franchisor’s actual loss, costs avoided because the agreement ended, the obligation to mitigate loss or the circumstances in which termination occurred.
Franchisors with similar provisions should seriously consider removing them. If protection against loss following early termination is genuinely required, the agreement should instead adopt a more proportionate mechanism connected to the loss reasonably suffered by the franchisor.
The practical message
Since 9 November 2023, it has been unlawful to propose, use or rely upon an unfair term in a standard-form small-business contract. The potential penalties are now extremely significant.
That does not mean every franchise agreement must provide identical rights to each party, or that franchisors cannot protect their legitimate commercial interests. It does mean those protections should be carefully targeted, transparent and no broader than reasonably necessary.
The ACCC’s latest action is not binding precedent, but it is a clear regulatory signpost. Franchisors should review any broad post-termination restraints, high default-interest rates and provisions requiring payment of future fees following early termination—and consider whether those clauses should be narrowed, reduced or removed.