Buying a Franchise in Australia: Check Non-Compete Rules

Buying a franchise can shape more than your next business venture: it can also affect how you earn a living afterwards. Non-compete and other restraint clauses may restrict the work you do, the customers you approach or the business you establish after the relationship ends. Before joining Australia’s franchising community, assess these restrictions against your existing skills, commitments and future plans.

Identify every restriction on future work

Do not stop at the clause headed ‘restraint of trade’. Related obligations may appear under confidentiality, customer relationships, termination, intellectual property or guarantees. Ask your solicitor to identify all provisions that could affect your ability to work elsewhere.

Different restrictions do different jobs:

• Non-compete clauses seek to prevent you from operating, joining or having an interest in a competing business.
• Non-solicitation clauses may restrict approaching customers, employees or other business contacts.
• Confidentiality clauses protect information and may continue after the agreement ends.
• Brand and system restrictions govern the continued use of trade marks, materials and other intellectual property.

These are not interchangeable. Being free to work for another business does not mean you can take confidential customer records or continue using the franchise’s branding.

Check who is bound. The documents may seek commitments from your operating company, directors or guarantors. Your solicitor should explain each person’s exposure rather than treating the restraint as a company-only issue.

Understand the Australian legal framework

Australia specifically regulates franchising through the mandatory Franchising Code of Conduct, made under the Competition and Consumer Act 2010. A new Code commenced on 1 April 2025, with some additional requirements applying from 1 November 2025. For an existing franchise purchase, have your solicitor establish which provisions apply to the agreement and proposed transaction.

The ACCC explains that franchise agreements should not contain unreasonable terms preventing franchisees from working elsewhere once an agreement ends or is not renewed or extended. That does not mean every restraint is automatically prohibited, or that a clause becomes enforceable simply because you sign it.

Restraint enforceability also depends on applicable state or territory law and the circumstances. Courts may consider whether a restriction reasonably protects a legitimate business interest, rather than merely preventing competition. The treatment of an overbroad clause can differ between jurisdictions.

Australian Consumer Law protections against unfair contract terms may also be relevant to a qualifying small business standard-form contract. However, do not assume that calling a clause unfair removes it from your agreement. Obtain advice on the actual wording and available protections before committing.

Test the wording against your likely next step

Ask your solicitor to translate each restraint into practical scenarios. A useful starting question is: ‘If this franchise finishes, what work could I realistically do the following month?’

Examine four dimensions:

• Activities: Does the clause cover the particular service you will provide, or a much broader range of businesses? Could it capture employment as well as ownership?
• Location: Is the restricted area measured from your outlet, your territory or other outlets in the network? Could its reach change as the network grows?
• Duration: How long does the restriction last, and what event starts the clock?
• Trigger: Does it apply after expiry, termination, a sale, non-renewal or several of these events?

Some agreements list alternative periods and geographic areas, often called cascading restraints. Do not assume that only the shortest period or smallest area matters. Ask how the alternatives could operate under the relevant law.

Use concrete examples drawn from your circumstances: returning to your previous employer, working remotely for another brand, opening an independent business nearby or keeping an existing investment. This reveals consequences that a general question about ‘competition’ can miss.

Negotiate clarity before committing

If a restriction threatens your livelihood, raise it before signing. Possible requests include a narrower definition of competing activities, a smaller geographic area, a shorter duration or an express exception for an existing business interest.

Ask your solicitor whether the agreement should distinguish ordinary employment from owning a directly competing business. Also ask how the restraint operates if the franchisor chooses not to continue the relationship.

Treat verbal reassurance cautiously. ‘We never enforce that clause’ is not the same as removing or narrowing it. Have agreed changes recorded in the binding documents and check that related deeds do not reintroduce the restriction.

Practical takeaway: Before buying, map the restraint against one realistic future job and one realistic future business. If either would be blocked, resolve the wording with your solicitor before you commit—not when you need your next income.