Australia’s franchise sector is one of the largest in the world. With over 1,200 franchise systems operating more than 94,000 individual outlets, the industry generates approximately $174 billion in annual revenue and employs upwards of 565,000 Australians across virtually every consumer-facing industry — from fast food and fitness to real estate, automotive services, and aged care. Franchising, when it works well, offers franchisees a proven business model and brand recognition while allowing franchisors to scale efficiently. But the relationship between franchisor and franchisee is an inherently complex one, built on contracts, trust, and the sometimes-difficult alignment of competing commercial interests.
When that alignment fractures — over fees, territory encroachment, operational directives, renewal terms, or termination conditions — the financial and emotional consequences can be severe. For a franchisee who has invested their life savings, the stakes are existential. For a franchisor managing network stability and brand reputation, an escalating dispute can send shockwaves through the entire system. This is precisely why the Australian Government, through the Franchising Code of Conduct, has mandated a structured dispute resolution process that places mediation at its centre — recognising that collaborative resolution almost always produces better commercial outcomes than courtroom litigation. At Mediations Australia, our accredited mediators work with franchisors and franchisees across the country to resolve disputes efficiently, confidentially, and in a way that protects both the business and the relationship.
Understanding the Franchising Code of Conduct
The Franchising Code of Conduct is a mandatory industry code prescribed under the Competition and Consumer Act 2010 (Cth) and enforced by the Australian Competition and Consumer Commission (ACCC). It governs the conduct of both franchisors and franchisees throughout the entire lifecycle of the franchise relationship, from pre-contractual disclosure through to termination and post-agreement obligations. Every franchise agreement entered into, renewed, extended, or transferred in Australia is subject to its provisions.
The Code underwent its most significant overhaul in over a decade when the Competition and Consumer (Industry Codes — Franchising) Regulations 2024 introduced a comprehensively remade Code, effective from 1 April 2025, with certain provisions commencing on 1 November 2025. The reforms, which followed the Schaper Review of the franchise sector, deliver stronger franchisee protections, enhanced disclosure obligations, and critically, more robust dispute resolution mechanisms. Among the headline changes are a new requirement for franchise agreements to provide franchisees with a reasonable opportunity to make a return on their investment, mandatory compensation provisions for early termination by the franchisor, limits on post-termination restraint of trade clauses, and significantly increased penalties for Code breaches — now set at 600 penalty units per violation, equating to $198,000 for individuals and $990,000 for companies. In the 2025 Federal Budget, the ACCC was also allocated $7.1 million specifically to strengthen franchising law enforcement, signalling the Government’s commitment to active compliance monitoring across the sector.
Common Types of Franchise Disputes
Franchise disputes can arise at any stage of the relationship and across a wide range of commercial issues. Recognising the most common categories helps both parties identify emerging problems early and take proactive steps toward resolution before positions harden.
Pre-Contractual Disclosure and Misrepresentation
A significant proportion of franchise disputes trace back to the pre-contractual period. Franchisees may allege that the franchisor failed to disclose material information in the Disclosure Document, that projected earnings or costs were materially misrepresented, or that the true financial performance of the franchise system was obscured. The new Code has strengthened disclosure requirements — including mandatory updates to Disclosure Documents and additional information on the Franchise Disclosure Register — but disputes about what was said, shown, or implied before the agreement was signed remain among the most common complaints lodged with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
Fees, Royalties, and Marketing Fund Management
Disagreements about the quantum and application of franchise fees, the calculation of royalties, and the transparency of marketing fund expenditure are a persistent source of friction. Franchisees often question whether marketing fund contributions are being spent in ways that genuinely benefit their individual outlet or territory. The new Code has introduced enhanced accountability requirements for marketing funds and other “specific purpose funds,” but the inherent tension between franchisor-controlled spending and franchisee expectations of tangible local benefit continues to generate disputes.
Territory Rights and Encroachment
Franchise agreements typically define the territory within which a franchisee may operate, whether on an exclusive or non-exclusive basis. Disputes arise when franchisors grant new franchise outlets in areas that encroach on an existing franchisee’s customer base, establish company-owned outlets nearby, or expand into online and delivery channels that compete directly with bricks-and-mortar franchisees. These disputes often carry significant financial stakes, as territory erosion can fundamentally undermine the viability of a franchisee’s business.
Operational Standards and Compliance Obligations
Maintaining brand consistency is a legitimate franchisor interest, and franchise agreements invariably contain detailed operational requirements. However, disputes emerge when franchisees view compliance directives as unreasonable, when mandated refurbishments or system upgrades impose costs that the franchisee cannot absorb, or when enforcement of standards appears inconsistent across the network. The line between reasonable operational control and excessive interference is frequently contested.
Renewal, Termination, and Exit
Among the most emotionally and financially charged franchise disputes are those involving the end of the franchise relationship. Disagreements about renewal conditions, the terms of a forced or voluntary exit, the transfer or sale of the franchise business, and the application of post-termination restraint of trade clauses are common. The ASBFEO has reported that disputes relating to exits, terminations, and the sale of franchise businesses are consistently among the matters requiring the most intensive case management. The new Code’s provisions on early termination compensation and restraint limitations are welcome reforms, but exit disputes remain inherently high-stakes.
The Mandatory Dispute Resolution Framework
The Franchising Code prescribes a structured, two-step dispute resolution process that both parties must follow before resorting to court proceedings. This framework reflects the policy position — supported by decades of evidence — that commercial disputes are overwhelmingly better resolved through negotiation and mediation than through litigation.
Step 1: Issue a Notice of Dispute
When a dispute arises, the first step is for either party to issue a written notice of dispute to the other. The ACCC’s guidance on resolving franchising disputes explains that this notice must clearly set out the nature of the dispute, the outcome sought, and the action the issuing party believes will resolve the matter. The parties are then expected to attempt resolution through direct negotiation within a reasonable timeframe.
Step 2: Proceed to Alternative Dispute Resolution
If direct negotiation does not resolve the dispute, either party may refer the matter to alternative dispute resolution — being mediation or conciliation. Under the Code, the ASBFEO facilitates access to independent ADR practitioners and can appoint a mediator or conciliator to assist. Once a dispute has been referred to ADR, both parties are required to attend and try to resolve the dispute in good faith. Mediation costs are generally shared equally between the parties, unless they agree otherwise.
The new Code has also introduced a significant practical reform: multi-party mediation. This allows multiple franchisees who have similar disputes with the same franchisor to participate in a single mediation process. This is an important acknowledgment that many franchise disputes are systemic rather than isolated — arising from network-wide policies, fee structures, or operational changes that affect numerous franchisees simultaneously. Multi-party mediation reduces duplication, lowers costs, and enables a coordinated resolution that addresses the underlying systemic issue rather than forcing each affected franchisee to pursue an individual complaint.
Why Mediation Works for Franchise Disputes
Franchise disputes are fundamentally commercial in nature. They involve ongoing business relationships, substantial financial investments, confidential operational information, and reputational considerations that make courtroom litigation a particularly blunt and damaging instrument. Mediation offers distinct advantages that are directly aligned with the commercial realities of the franchise sector.
Preserving the Commercial Relationship
Litigation is adversarial by design. It produces winners and losers, generates public judgments, and almost invariably destroys the commercial relationship between the parties. In a franchise context, the damage extends further — other franchisees in the network observe how disputes are handled, and prospective franchisees research a system’s dispute history before committing their capital. Mediation is collaborative and confidential. It allows both parties to address their concerns directly, explore creative solutions, and reach outcomes that preserve the franchise relationship where viable — or facilitate a commercially sensible exit where it is not.
Speed
Franchise disputes that proceed to the Federal Court or state courts can take years to reach final hearing. Throughout that period, the franchisee’s business may be deteriorating, the franchisor’s network may be destabilised, and both parties accumulate legal costs that often dwarf the value of the underlying dispute. Mediation can typically be arranged within a matter of weeks and concluded in one to two sessions. The ASBFEO’s active case management reinforces this efficiency — ASBFEO data shows that approximately 15 per cent of all contacts to the Ombudsman relate to franchising matters, and the office actively case-manages over 150 franchise disputes annually.
Cost-Effectiveness
The financial accessibility of mediation is particularly significant in franchising, where the power imbalance between a well-resourced franchisor and an individual franchisee is often stark. For a franchisee who has invested their savings into the business, the cost of mediation — typically a fraction of even the preliminary stages of litigation — can be the difference between pursuing a legitimate dispute and simply absorbing an unfair outcome because they cannot afford to fight. Franchisors also benefit, particularly given the new Code’s multi-party mediation provisions, which can resolve network-wide disputes in a single process rather than through a series of costly individual claims.
Confidentiality
Franchise disputes frequently involve commercially sensitive information — financial performance data, proprietary operating systems, supplier contracts, and strategic plans. Court proceedings place this material on the public record. Mediation keeps it strictly confidential. For franchisors, this protects brand integrity and system-wide confidence. For franchisees, it protects personal financial information and preserves their ability to sell or transition the business without the taint of public litigation.
Flexible and Creative Outcomes
Courts are confined to the legal remedies available to them, principally damages, injunctions, or declarations. Mediation allows parties to craft outcomes that are far more commercially nuanced. A franchise mediation might result in revised fee structures, amended territory boundaries, phased exit arrangements with transition support, marketing fund governance reforms, extended agreement terms, or any other commercially sensible arrangement that addresses the genuine interests of both parties. These tailored solutions are not available through litigation and are far more likely to produce outcomes that both parties can live with and comply with over time. Research consistently shows that mediated agreements attract significantly higher voluntary compliance rates than court-imposed orders.
The Expanded Role of the ASBFEO
The ASBFEO plays an increasingly important role in franchise dispute resolution, particularly under the strengthened provisions of the new Code. Beyond facilitating access to ADR services and actively case-managing disputes, the Ombudsman now has the power to publicly name franchisors who refuse to participate in, or withdraw from, alternative dispute resolution processes. This “name and shame” power, available under section 74 of the Australian Small Business and Family Enterprise Ombudsman Act 2015, is a significant reputational deterrent.
Published ASBFEO case studies illustrate how effective this power has already been. In one reported matter, a franchisor repeatedly ignored correspondence and a formal Notice to Mediate until the Ombudsman advised that it intended to publish the franchisor’s refusal to participate. The franchisor promptly re-engaged, attended mediation, and the parties reached a commercial resolution. This pattern — initial resistance followed by engagement once the prospect of public naming becomes real — underscores the practical importance of the ASBFEO’s expanded role and the broader policy direction toward compelling good-faith participation in dispute resolution.
Preparing for Franchise Mediation
Effective preparation for mediation is critical in franchise disputes, which tend to be document-heavy, financially complex, and emotionally charged. The following steps will help ensure you approach the mediation in the strongest possible position.
Understand your franchise agreement. Before mediation, review the specific provisions of your franchise agreement that relate to the issues in dispute. Identify the rights, obligations, and dispute resolution clauses that are relevant. If your agreement was entered into, renewed, or transferred after 1 April 2025, be aware that the new Code provisions apply in full.
Organise your financial and documentary evidence. Franchise disputes invariably involve financial data: revenue figures, fee calculations, marketing fund statements, territory performance data, and correspondence between the parties. Prepare these documents in an organised, accessible format. If the financial position is complex, consider engaging an accountant to prepare a summary that can be shared during the mediation.
Assess your alternatives realistically. Before entering any negotiation, you should understand your best alternative to a negotiated agreement — your “BATNA.” For franchisees, this means honestly assessing the cost, duration, and likelihood of success of litigation, and the impact of an ongoing dispute on the day-to-day operation of your business. For franchisors, it means weighing the reputational and network-wide consequences of a failed mediation, the cost of defending formal proceedings, and the precedent that any court outcome might set across the franchise system.
Obtain legal advice before the session. While legal representation is not required in mediation, obtaining independent advice from a franchise-experienced lawyer before the session ensures you understand your legal position and can identify where compromise is commercially sensible and where your rights should be firmly maintained.
Attend with decision-making authority. A common reason franchise mediations stall is that one party — typically the franchisor — attends without the authority to make binding commitments. Ensure the person attending has the mandate to agree to terms. For corporate franchisors, this generally means sending a senior executive with board authority, not a junior manager who needs to “take it back for approval.”
When Mediation Is Not Sufficient
While mediation resolves the significant majority of franchise disputes, it is not always the final step. If a dispute involves alleged breaches of the Competition and Consumer Act 2010, such as unconscionable conduct, misleading or deceptive conduct, or anti-competitive behaviour, the ACCC may take enforcement action independently. If a franchisor refuses to engage with ADR despite the ASBFEO’s intervention and the threat of public naming, court proceedings may become necessary. And in urgent matters — such as a threatened wrongful termination or an unenforceable restraint of trade — interim court orders may be needed to preserve the status quo while mediation is arranged.
Even in these circumstances, mediation frequently plays a complementary role. Courts routinely refer franchise disputes to mediation, and data from the Federal Court of Australia and state supreme courts consistently shows that over 90 per cent of mediated commercial disputes reach settlement, whether on the day or shortly after.
Protecting Your Franchise Investment
Whether you are a franchisor building a national network or a franchisee who has committed your capital, career, and ambition to a franchise business, disputes are a commercial reality. The question is not whether they will arise, but how effectively you manage them when they do. The Franchising Code of Conduct provides a clear, structured pathway that prioritises mediation over litigation. The strengthened 2025 Code, with its expanded ASBFEO powers, multi-party mediation provisions, increased penalties, and new franchisee protections, sends an unambiguous message: the Australian regulatory framework expects franchise disputes to be resolved cooperatively, transparently, and in good faith.
At Mediations Australia, our accredited commercial mediators have extensive experience resolving franchise and business disputes. We work with franchisors, franchisees, and multi-party groups across Australia, both in person and online, to help them navigate disagreements constructively and reach outcomes that protect their businesses, their investments, and their commercial futures. Contact us today for a free, confidential consultation.
This article is for general information purposes only and does not constitute legal advice. For personalised guidance regarding your specific situation, please consult a qualified legal professional or accredited mediator.