Forced discounts and royalties

By Sarah Stowe | 29 Oct 2015 View comments

Question: Can you advise if a franchisor can force you to give a discount through a national marketing initiative and then still charge you royalty and marketing fees on the discount you gave?

Answer: For any question about what you are obliged to do the staring point must be the terms of the franchise agreement. However, even if the franchise agreement permits the franchisor to oblige you to offer discounts it would be surprising if the franchise agreement allowed the franchisor to charge royalties on the full price before the discount. 

The discounted amount is the amount at which you in fact sell the goods or services and is the gross sale amount. The conduct of the franchisor may be unconscionable and in breach of the Australian Consumer Law but this depends on all the circumstances. Further, the franchisor's conduct may be a repudiation of the franchise agreement caused by the franchisor insisting on an interpretation of the meaning of the franchise agreement that is incorrect. If so, this may give you a right to choose to terminate the franchise agreement. I recommend that you obtain legal advice before making any decisions about the franchisor's conduct.