Franchise Disputes in Australia: The Most Common Pressure Points Between Franchisors and Franchisees

You invested hundreds of thousands in a franchise. You followed the system. You paid the fees. And now you’re sitting across from your franchisor, or your franchisee, and the relationship is breaking down.

Maybe it’s territory encroachment. Maybe it’s royalties that keep climbing. Maybe it’s a termination notice you weren’t expecting. Maybe it’s a franchisee who won’t follow the brand standards and is damaging your network.

Whatever the catalyst, you’re now facing something that no franchise disclosure document properly prepares you for: a full-blown franchise dispute.

And the question burning in your mind is simple: “Is this normal, is it legal, and what do I do next?”

Franchise disputes are more common than most franchisors and franchisees want to admit. The model itself creates pressure points. You have two businesses, legally separate but commercially joined, with different priorities, different cash flow pressures, and different ideas about what “success” looks like.

Add in power imbalance, contractual complexity, and the fact that most franchisees are owner-operators with everything on the line, and you have a relationship under constant strain.

This article walks through the most common franchise disputes in Australia, why they arise, and what franchisors and franchisees should do when the relationship starts to fracture.

Understanding the franchisor–franchisee relationship

The franchise model is built on a paradox.

Legally, you’re independent. The franchisee owns their business. The franchisor owns the brand and the system. Two separate entities.

Commercially, you’re joined at the hip. The franchisee’s success depends on the franchisor delivering a strong brand, effective systems, and genuine support. The franchisor’s success depends on franchisees executing the model, paying fees on time, and not damaging the network.

This creates mutual dependence and inherent tension.

The franchisor wants consistency, compliance, and control. The franchisee wants flexibility, profitability, and a return on their investment. When those goals diverge, disputes follow.

Power imbalance makes it worse. Franchisors draft the agreements. They control the intellectual property. They can threaten termination. Franchisees, especially first-timers, often enter the relationship with limited bargaining power and a lot of optimism.

That optimism fades when the promised support doesn’t materialise, or when costs keep rising, or when a new outlet opens two suburbs over and cuts into your revenue.

Can you see the pressure building?

The most common pressure points in franchise disputes

Fees, royalties and marketing contributions

Money is the single biggest source of friction in franchise relationships.

Franchisees pay ongoing royalties, often calculated as a percentage of revenue. They contribute to marketing funds. Sometimes there are technology fees, compliance fees, or other levies.

When those fees go up, or when franchisees can’t see where the money is going, disputes flare.

Common scenarios:

• The franchisor unilaterally increases royalty rates or marketing contributions beyond what the franchise agreement clearly permits.
• Marketing levies disappear into national campaigns that deliver no local benefit, and franchisees question whether the fund is being used properly.
• The franchisor introduces new fees (software platforms, rebranding costs, compliance audits) that weren’t disclosed upfront.
• Franchisees fall behind on payments because revenue isn’t meeting projections, and the franchisor threatens termination.

Here’s what matters: your franchise agreement sets out what fees are payable, how they’re calculated, and what happens if they’re not paid. If the franchisor is changing the deal unilaterally, you need to check whether the agreement actually permits that variation.

If you’re a franchisor and a franchisee isn’t paying, you need to follow the process before you terminate. Jumping straight to lock-out mode can expose you to claims of unconscionable conduct or breach of good faith.

Territory and encroachment

You bought a franchise partly for geographic exclusivity. Your territory was supposed to protect your customer base.

Then the franchisor opens a new outlet ten minutes down the road. Or they start selling through an online channel that undercuts your pricing and steals your customers.

Territory disputes ignite fast, and they’re often deeply personal. Franchisees feel betrayed. Franchisors argue they need to grow the network and maximise brand reach.

Who’s right depends on what the franchise agreement actually says about territory.

Some agreements grant strict geographic exclusivity. Others use vague language like “primary trading area” or allow the franchisor to open new outlets with minimal restrictions. Some agreements permit online sales or alternative channels without compensating existing franchisees.

If your territory clause is ambiguous or contains carve-outs the franchisor is exploiting, you’re in a weaker position. If the agreement is clear and the franchisor is breaching it, you have leverage.

Either way, encroachment disputes escalate quickly because they go to the core of what you paid for.

What you should do if this is happening:

Operating standards and performance targets

Franchisors impose operating standards. That’s the point of the model. Consistency across the network protects the brand.

But disputes arise when those standards change unilaterally, become unrealistic, or are enforced inconsistently.

Examples:

• The franchisor introduces new fit-out requirements or technology upgrades and expects franchisees to fund them with minimal notice.
• Performance targets (sales, customer satisfaction scores, compliance audits) are set so high that most franchisees can’t meet them, creating a pretext for termination.
• The franchisor selectively enforces standards, cracking down on some franchisees while ignoring breaches by others.

From the franchisor’s perspective, maintaining standards is non-negotiable. A franchisee who cuts corners or ignores brand guidelines damages everyone in the network.

From the franchisee’s perspective, constant changes and escalating demands feel like the franchisor is moving the goalposts or setting them up to fail.

The franchise agreement usually gives the franchisor broad power to set and vary operating standards. But if those variations are commercially unreasonable, impose costs far beyond what was disclosed, or are applied in bad faith, you may have grounds to push back.

If you’re a franchisee receiving breach notices for performance issues, don’t ignore them. Respond in writing. Ask for specifics. Request a reasonable opportunity to remedy. Document what you’re doing to comply.

If you’re a franchisor dealing with a franchisee who won’t meet standards, build a clear compliance trail. Warnings, breach notices, opportunities to remedy. Don’t jump straight to termination unless the breach is serious and immediate.

Support, training and systems

Franchisees buy a franchise because they’re buying a proven system, training, and ongoing support.

When that support doesn’t show up, or when the “system” turns out to be outdated or poorly documented, franchisees feel misled.

Common complaints:

• Initial training was superficial or generic, leaving franchisees unprepared to run the business.
• Ongoing support is non-existent. Phone calls go unanswered. Field visits don’t happen.
• The operations manual is out of date or doesn’t reflect how the business actually runs.
• The franchisor provides support to new franchisees but abandons established ones.

From the franchisor’s perspective, they’ve delivered what the agreement requires. If the agreement only obliges them to provide initial training and “reasonable assistance”, they argue they’ve met that standard.

From the franchisee’s perspective, the gap between what was promised in the sales pitch and what’s actually delivered feels like breach of contract or misleading conduct.

Here’s the test: what does the franchise agreement actually promise in terms of support? Is it specific (quarterly field visits, 24/7 helpline, updated manuals) or vague (“reasonable assistance as required”)?

If the agreement is vague, proving breach is harder. But if you were given specific assurances during the sales process that aren’t reflected in the written agreement, you may have a misrepresentation claim under the Australian Consumer Law.

Misrepresentation and unrealistic expectations

This is where the real anger lives.

You were shown financial projections. You were told “most franchisees make X in year one.” You were walked through a disclosure document that painted a rosy picture. You asked questions, and you were reassured.

Then reality hits. Revenue is half what you were led to expect. Costs are higher. The market is tougher. The support isn’t there. And you’re bleeding cash.

Misrepresentation claims in franchising usually centre on:

• Overstated profitability or revenue forecasts in pre-sale materials or verbal assurances.
• Downplaying costs, risks, or the difficulty of operating the franchise.
• Misleading statements about territory exclusivity, competition, or market conditions.
• Concealing poor performance of other franchisees or high failure rates in the network.

Under the Australian Consumer Law, franchisors cannot engage in misleading or deceptive conduct. If a franchisor makes statements (written or verbal) that are false or likely to mislead, and you rely on those statements to your detriment, you may have a claim.

The Franchising Code also requires franchisors to provide a disclosure document with specific financial and operational information. If that document is incomplete, inaccurate, or deliberately misleading, that’s a breach of the Code and potentially the ACL.

But here’s the reality check: proving misrepresentation is hard. You need evidence. Emails, documents, notes from meetings. You need to show what was said, that it was false, and that you relied on it.

And you need to act within limitation periods, typically six years from when you discovered (or should have discovered) the misrepresentation.

If you’re sitting on a franchise that’s underperforming and you believe you were misled, don’t wait. Get legal advice. Pull together every document, email, and note from the sales process. Work out whether you have a realistic claim or whether this is a case of hindsight bias and market reality.

Termination, lock-outs and end-of-relationship disputes

Termination disputes are the most urgent and high-stakes category.

When a franchisor terminates a franchise, the franchisee loses their livelihood. When a franchisee walks away or breaches the agreement, the franchisor loses control of a location and risks brand damage.

Common termination scenarios:

• The franchisor alleges serious breach (non-payment, repeated non-compliance, conduct damaging the brand) and terminates immediately.
• The franchisee arrives at the premises to find they’ve been locked out, with no prior warning.
• The franchisor issues a breach notice giving the franchisee a short window to remedy, then terminates when the franchisee disputes the breach or fails to fix it in time.
• The franchisee wants out because the business is failing, but the franchisor won’t agree to an early exit or demands unreasonable payments.

The Franchising Code sets out rules around termination. Franchisors generally cannot terminate without giving the franchisee a reasonable opportunity to remedy the breach, unless the breach is serious and immediate (fraud, insolvency, serious damage to the brand).

Even where termination is allowed, lock-outs and immediate loss of access can give rise to claims for injunctive relief, especially if the franchisee argues the termination was wrongful or procedurally defective.

If you’re a franchisee and you receive a termination notice or find yourself locked out:

If you’re a franchisor terminating a franchise:

Termination disputes move fast. They’re expensive. They’re emotionally charged. And they often end in litigation if early resolution fails.

How the Franchising Code of Conduct deals with disputes

The Franchising Code isn’t just a set of disclosure obligations. It also sets out a mandatory dispute resolution process.

If you’re in a franchise dispute, the Code requires you to follow these steps before you can go to court.

Notice of dispute

Either party can initiate the process by giving the other a written notice of dispute.

The notice must:

• Identify the dispute.
• State what outcome you’re seeking.
• Be given in writing.

Once the notice is given, both parties must try to resolve the dispute within three weeks (21 days). This can be through negotiation, internal dispute procedures, or any method both parties agree on.

If you don’t resolve it within 21 days, either party can request mediation.

Mediation

Mediation under the Code is mandatory. If one party requests it, the other must participate.

You can choose your own mediator, or use the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), which offers low-cost mediation services specifically for franchise disputes.

The franchisor pays the mediator’s costs. The Code prohibits franchisors from passing mediation costs on to franchisees (though each party pays their own legal costs).

Mediation is confidential, without prejudice, and genuinely useful if both parties want to find a resolution. A good mediator can help you see the dispute from the other side’s perspective and explore options you hadn’t considered.

But mediation only works if both parties engage in good faith. If one side is just going through the motions, or if the gap between positions is unbridgeable, mediation becomes a box-ticking exercise before litigation.

What happens if mediation fails?

If mediation doesn’t resolve the dispute, you’re free to go to court or pursue other legal remedies.

But here’s the thing: the Code process, if used strategically, can give you leverage. A well-drafted notice of dispute frames the issues. Mediation forces the other side to engage. And if the franchisor refuses to mediate in good faith, that can undermine their credibility later.

Don’t treat the Code process as a formality. Treat it as an opportunity to test the other side’s position, gather information, and see whether there’s a path to settlement before you commit to litigation.

Practical steps when a dispute emerges

You know a dispute is brewing. Maybe it’s a single issue that’s escalated. Maybe it’s a pattern of frustration that’s reached breaking point.

What do you do?

Step one: document everything

Start building a file. Emails, letters, financial records, breach notices, meeting notes, phone call summaries.

If this dispute goes legal, evidence matters. You need to be able to prove what was said, what was done, and when.

Don’t rely on memory. Don’t assume “everyone knows what happened.” Document it.

Step two: review your franchise agreement and disclosure document

Pull out the contract. Read the relevant clauses. Fees, territory, operating standards, termination, dispute resolution.

Then read the disclosure document. What were you told about profitability, support, and territory? Does reality match up?

Understanding what the contract says versus what you were led to believe is the foundation of your case.

Step three: get legal advice early

Most franchise disputes escalate because one party makes a strategic mistake early on.

The franchisee sends an angry email that admits breach. The franchisor terminates without following the required process. Someone misses a deadline and loses their rights.

Early legal advice prevents those mistakes.

A good disputes lawyer will:

• Review your franchise agreement and identify your rights and risks.
• Help you frame the issues strategically.
• Advise whether the other side’s position is legally sound or bluffing.
• Guide you through the notice of dispute and mediation process.
• Tell you whether you’re heading toward negotiation, settlement, or litigation.

Don’t wait until you’ve been locked out or served with court papers. Get advice when the dispute is still manageable.

Step four: use the Code process strategically

Don’t skip the notice of dispute. It’s not just a formality.

A well-drafted notice frames the dispute on your terms, sets out what you want, and signals that you’re serious.

It also starts the clock on the 21-day negotiation period, during which both sides should be trying to resolve the issue.

Use that time to:

• Test the other side’s willingness to negotiate.
• Exchange information and narrow the issues.
• Explore settlement options.

If the other side won’t engage, or if their position is unreasonable, you’ve set the stage for mediation or litigation.

Step five: consider your end game

Before you escalate, ask yourself: what do I actually want?

Do you want to fix the relationship and keep operating? Do you want out? Do you want compensation? Do you want to force the other side to comply with the agreement?

Your end game shapes your strategy.

If you want to preserve the relationship, mediation and negotiation are your best tools. If you want out, you need to understand exit options and leverage. If you want to fight, you need to be prepared for the cost, time, and stress of litigation.

Be honest about what’s realistic. And be prepared to adjust as the dispute evolves.

Options for resolving the dispute

You have choices. Not all of them involve litigation.

Negotiation and internal resolution

The cheapest, fastest option is to resolve the dispute directly with the other party.

This works if:

• Both parties still want to preserve the relationship.
• The issue is relatively contained (a fee dispute, a misunderstanding, a short-term performance issue).
• There’s goodwill and trust left in the relationship.

Negotiation can be informal (phone calls, meetings) or structured (facilitated discussions, written proposals).

The risk is that one party uses negotiation to stall, gather information, or position themselves for later action. So negotiate with clear timelines and in writing.

Mediation and conciliation

Mediation is mandatory under the Code, but it’s also genuinely useful if both sides engage properly.

A mediator doesn’t decide the dispute. They facilitate a conversation, help you explore options, and test whether settlement is possible.

Good mediators can:

• Break deadlocks by reframing issues.
• Float settlement options neither party had considered.
• Reality-test each side’s position.
• Help you see the cost and risk of continuing the fight.

Mediation works best when both parties have legal advice, understand their positions, and are willing to compromise.

It doesn’t work when one party is just going through the motions, or when the power imbalance is so severe that the franchisee feels they have no choice but to accept whatever the franchisor offers.

ASBFEO offers a cost-effective mediation service for franchise disputes. Many disputes settle at mediation because both sides realise that litigation is expensive and uncertain.

Arbitration

Some franchise agreements include arbitration clauses requiring disputes to be resolved through arbitration rather than court.

Arbitration is private, usually faster than litigation, and results in a binding decision.

The downsides are cost (arbitrators charge fees), limited rights of appeal, and the fact that you’re locked into the process if the agreement requires it.

If your agreement includes an arbitration clause, you need to understand whether it’s mandatory, what issues it covers, and whether you can still go to court for urgent relief (like an injunction to prevent termination).

Litigation

If negotiation and mediation fail, litigation is the final option.

Litigation means court proceedings, formal evidence, cross-examination, and a judge deciding the dispute.

It’s expensive. It’s slow. It’s stressful. And the outcome is uncertain.

But sometimes litigation is unavoidable:

• When the franchisor has terminated and locked you out, and you need urgent injunctive relief.
• When the other side refuses to mediate in good faith.
• When the dispute involves serious allegations (fraud, unconscionable conduct, systematic breaches) that can’t be settled.
• When you need a binding legal decision to enforce your rights.

If you’re heading toward litigation, you need to:

• Understand the likely cost (six figures is not unusual for a contested franchise dispute).
• Assess the strength of your case realistically.
• Explore whether there are still settlement options even after proceedings start.
• Be prepared for the emotional and commercial toll it takes.

Strategic considerations for franchisors and franchisees

Franchise disputes aren’t just legal. They’re commercial and reputational.

For franchisees

You’re fighting someone with deeper pockets, more legal resources, and more experience in disputes.

Your leverage comes from:

• The strength of your legal position (breach of contract, misleading conduct, wrongful termination).
• The franchisor’s desire to avoid bad publicity, especially if they’re still recruiting new franchisees.
• The cost and distraction of litigation for the franchisor.

But you also need to be realistic about what you can achieve. If the business is failing and the relationship is broken, getting a clean exit with minimal liability might be a better outcome than fighting for years.

For franchisors

You need to balance protecting the brand and the network with the risk of setting bad precedents or creating public relations problems.

Terminating a franchisee might be legally justified, but if it triggers litigation, media coverage, or a wave of complaints from other franchisees, the cost can outweigh the benefit.

Your leverage comes from the franchise agreement, your control of the intellectual property, and your ability to enforce standards across the network.

But aggressive enforcement, lock-outs, or refusal to mediate can expose you to claims of unconscionable conduct or bad faith dealing, especially if the franchisee is vulnerable or the dispute could have been avoided.

Think strategically. Ask whether termination or escalation is the right commercial decision, not just the legally available option.

When to seek legal advice and what to expect

You should get legal advice as soon as a dispute moves beyond informal conversation.

Triggers for getting advice:

• You receive a termination notice or breach notice.
• You’ve been locked out of the premises.
• You discover the franchisor has opened a competing outlet in your territory.
• You’re considering withholding fees or walking away from the franchise.
• You believe you were misled during the sales process.
• You’re a franchisor dealing with a franchisee who refuses to comply or pay fees.

A good disputes lawyer will:

• Review your franchise agreement and disclosure document.
• Assess the strength of your legal position.
• Explain your options (negotiate, mediate, litigate, exit).
• Help you draft notices of dispute and respond to breach allegations.
• Represent you in mediation or court proceedings.
• Give you a realistic assessment of cost, time, and likely outcomes.

What you should expect from the process:

• Honesty. A good lawyer won’t sugarcoat your position or promise outcomes they can’t deliver.
• Strategy. Litigation isn’t the only option. Sometimes the best outcome is a negotiated exit or varied terms.
• Cost clarity. You should know upfront what it will cost to run the dispute and what the risks are.
• Project management. Disputes have timelines, deadlines, and moving parts. Your lawyer should keep you informed and in control.

Franchise disputes can be resolved. But they require clear thinking, early advice, and a willingness to make hard commercial decisions.

The right lawyer won’t just handle your case. They’ll give you clarity. And clarity is the most powerful tool you can take into any dispute.

Disclaimer: This article is for general information only and does not constitute legal advice. Franchise disputes are fact-specific and require tailored advice based on your particular circumstances. If you are involved in a franchise dispute, contact Aptum Legal for a confidential discussion of your matter.