Regulatory Shift and Unfair Contract Terms
The ACCC’s December 2023 report on unfair contract terms noted that cascading restraints could exacerbate issues with transparency and uncertainty and are potentially unfair contract terms. This critique is part of a broader directive by the Australian government to refine the guidance on unfair contract terms in standard form contracts. The ACCC’s report pointed out that restraints which exceed what is reasonably necessary to protect a franchisor’s legitimate interests are likely to be deemed unfair.
Impact of the New Unfair Contract Terms Regime
The changes to the unfair contract terms regime, which took effect in November 2023, introduced the possibility of significant financial penalties (up to $50 million) for businesses entering into standard form contracts containing unfair terms.
Typical cascading restraints will often appear as follows:
Restraint Area:
- Australia;
- New South Wales;
- Sydney;
- a 2 km radius.
Restraint Period:
- 2 years;
- 1 year;
- 6 Months;
- 3 Months.
However, this practice may no longer be enforceable if the maximum restraints are deemed unreasonable or not commercially legitimate.
What can you do?
It is important to seek guidance on current industry standards, common law and reasonable practice to determine how your cascading restraints should be amended or reduced. For legal advice and assistance, reach out to us at hello@hitchadvisory.com.