The Australian Competition and Consumer Commission (ACCC) recently accepted a legal obligation on franchisor Back In Motion Physiotherapy Ltd to remove from its franchise agreements a commercial restriction (by the franchisee in favour of the franchisor) and a buy-out tax which it granted as „unfair“ under the Australian Consumer Law. If you are concerned that someone is violating a trade restriction or if you are considering an agreement that involves a trade restriction, you should seek professional advice. In New South Wales, in determining whether the restriction is valid, consideration is given to the actual alleged infringement and not to the limitation of the trade clause as a whole. Almost all franchise agreements will include a limitation of the trade clause, sometimes referred to as a restrictive agreement or non-competition clause. These clauses are intended to prohibit a franchisee from competing with the franchise system. A retention clause prevents a franchisee from making a similar transaction during and after the franchise agreement. A franchise agreement may also include a non-invitation clause. This clause is intended to prevent a franchisee from soliciting current or former employees and customers without the franchisor`s consent. Therefore, if there are appropriate alternative contractual mechanisms within the framework of the franchise agreement, the commercial clause may be considered inappropriate, with the exception of the limitation of the commercial clause that protects the interests of the value or confidentiality of the information provided by the franchisor. The geographic area should not be greater than what is necessary to protect the legitimate interest. For example, if the legitimate interest to be protected is the value of the franchised business, the area in which the franchised activity was active is relevant to the consideration of what is reasonable. -The Court attaches great importance to what the parties have negotiated and included in their agreements, but a clause stating that the restriction is appropriate is inconclusive. Spanline has designed, produced and sold home extensions or additions to both home builders and professional builders through a national network of franchises and sub-franchises.
In essence, these clauses required RPR not to encourage, participate, finance, finance or compete with activities similar to those of spanline`s franchise in the Illawara franchise sector, and imposed the same obligations on Marmax with respect to franchised territory on the south coast. A similar negative result was obtained for the franchisor in a Canadian case, MEDIchair LP versus DME Medequip Inc 2016 ONCA 168. In this case, the franchisor operated a network of businesses that sold and leased medical equipment, and the franchisee had had a franchise in Peterborough, Ontario, a relatively small town, for about 20 years. The Ontario Court of Appeal objected to the application of a restriction clause because it was shown that the franchisor did not intend to open a franchise store within the bulky area. The Tribunal found that the withholding clause could only protect „the legitimate interest of the franchisor“ and could not go beyond that. The Tribunal found that the franchisor, having no intention of opening a competing activity on this site, had not established an interest to be protected in this area. The court stated (to ) that „by the decision not to operate in Peterborough, [the franchisor] did acknowledge that it had no legitimate or proprietary interest to protect within the defined territorial scope of Confederation.“ When reaching an agreement, the parties should recognize the trade policy clauses and assess whether they are a problem before the contract is concluded. As the case in review shows, the courts will not necessarily accept that the deference is inappropriate.