Physiotherapy chain Back in Motion has been forced to amend its franchise agreements after the competition watchdog alleged unfair terms were erecting barriers for partners looking to exit their network.
The Australian Competition and Consumer Commission (ACCC) accepted a court-enforceable undertaking from the franchisor on Monday, striking restraint of trade terms that prevented former franchisees from involving themselves with nearby physiotherapy competitors within 12 months of leaving the network.
The franchisor had also been charging franchisees a “buy-out fee” equal to four times their annual royalties if they wanted to be released from the restraint of trade clause, in what ACCC deputy chair Mick Keogh said made it more difficult for partners to operate new businesses.
“Effectively, this clause in the franchise agreement meant that most former franchisees could not operate in many parts of metropolitan areas of Australia because of the existence of other Back In Motion Physiotherapy franchise outlets in those locations.
“We were concerned that this clause may cause detriment to franchisees seeking to exit the Back In Motion Physiotherapy franchise,” Keogh said in a statement.
Back in Motion, which has more than 500 franchisees across Australia and New Zealand, had maintained the terms in their standard franchise agreements for more than 15 years, but accepted on Monday they “may be unfair” under Australian Consumer Law.
The franchisor has also promised not to enforce either the restraint of trade or buy-out clauses in the future, or for franchisees that have left the group in the past 12 months.
The case is just the latest example of unfair contract terms in the scandal-plagued franchising sector, as the ACCC continues to try and enforce the franchising code of conduct.
However, unfair contract terms are still not illegal under existing laws, meaning while courts can void unfair provisions, there can be no penalties imposed on companies.
The ACCC has previously called on the federal government to outlaw unfair contract terms, but thus far, the Morrison government has only committed to an ongoing consultation process about strengthening the laws.
SmartCompany contacted Back in Motion for comment but did not receive a response prior to publication.