Unconscionable Conduct: Lessons From The Retail Food Group Case

If you run or are considering joining a franchise in Australia, you’ve probably heard references to “unconscionable conduct” in the wake of the ACCC’s proceedings involving Retail Food Group (the owner of brands like Gloria Jean’s, Brumby’s and Michel’s Patisserie).

Beyond the headlines, the big takeaway is simple: franchising success rests on fair dealing, transparency and robust compliance with Australian law. When either side of the franchise relationship cuts corners, the legal and commercial fallout can be significant.

In this guide, we unpack what unconscionable conduct means, what the Retail Food Group matter signals for franchisors and franchisees, and the practical steps you can take now to strengthen your systems, documents and day‑to‑day practices.

What Is Unconscionable Conduct Under Australian Law?

Unconscionable conduct is conduct so harsh or oppressive that it goes against good conscience, judged against the norms of business and fairness. In the franchise context, the Australian Consumer Law (ACL) prohibits both misleading conduct and unconscionable conduct in trade or commerce, which includes how franchisors sell franchises and deal with franchisees.

While every case turns on its facts, courts look at the full picture, including whether there was a meaningful power imbalance, if important information was withheld, whether pressure tactics were used, and if terms or practices created serious detriment that was not properly explained or justified.

Unconscionable conduct is broader than misleading conduct. Misleading or deceptive conduct focuses on whether representations about key matters (for example, profitability, costs or support) were false or likely to mislead. If you want a refresher on the legal standard, it’s worth revisiting Section 18 of the ACL on misleading or deceptive conduct and Section 29 on false or misleading representations.

Unconscionable conduct steps back and asks a bigger question: taken together, did the conduct cross the line of what’s fair? That can include the way a sale was made, how ongoing fees were used and reported, and how problems were handled over time.

What Happened In The Retail Food Group Case (At A High Level)?

The ACCC commenced proceedings in the Federal Court alleging that Retail Food Group engaged in unconscionable conduct and made false or misleading representations to certain franchisees across several brands. Allegations in the public domain included concerns about the sale of stores, the representation of operational costs or profitability, and the administration of marketing funds.

Rather than rehashing court pleadings or specific outcomes, the more useful angle for most business owners is the pattern of risk the case highlights for franchise systems:

• How pre‑contract representations (verbal and written) are made, recorded and verified.
• What level of due diligence prospective franchisees can and should do on financial performance and local market conditions.
• How fees (including marketing levies and royalties) are calculated, spent and reported.
• Whether ongoing support matches what was promised.
• How distressed, unprofitable or resold stores are handled.

The message for the entire sector is clear: fairness, transparency and documentation matter at every step of the franchise lifecycle - from recruitment to exit. If you get those right, you reduce legal risk and build a healthier network.

Key Lessons For Franchisors

1) Treat Disclosure As A Living, Accurate Record

Disclosure is not a box‑ticking exercise. Your disclosure document and franchise agreement should reflect how the business actually operates today (not three years ago). If your system has changed - supplier terms, fee structures, territories, required refurbishments - update your materials and your sales process accordingly.

Don’t rely on glossy decks to do the talking. The most important documents are the ones franchisees sign. This is where a precise, up‑to‑date Franchise Agreement (and annexures) is critical, backed by consistent scripts and training for your recruitment team.

2) Be Crystal Clear On Money Flows

Franchisees care deeply about fees: initial fees, royalties, rebates, mandated purchases and marketing levies. Spell out what is payable, when, and what each fee covers. If you operate a central marketing fund, publish periodic fund reports that show income, categories of expenditure and governance arrangements.

Language in your agreements should mirror your actual practices. If you operate a percentage‑of‑sales royalty or a tiered model, describe it plainly and link the numbers back to the definitions. For teams refreshing their model, it can help to revisit how you describe royalties and related charges, so franchisees understand the value exchange.

3) Manage Expectations With Evidence, Not Optimism

Performance projections are risky if they’re not well‑founded or clearly qualified. If you share historical sales ranges, note the assumptions, outliers, location specifics and timeframe. Avoid implying guaranteed profits or turnover. Keep a compliance file of what each prospect was shown and told.

If your team is evolving sales materials, run them through a legal lens for both accuracy and context against the ACL’s misleading conduct rules. Internal checklists and sign‑offs can greatly reduce the chance of stray or inconsistent claims.

4) Align Day‑To‑Day Practices With Contract Rights

Unconscionable conduct claims often arise where “the way things are done” drifts away from the wording of the agreement. Conduct periodic audits to ensure your field support, supply arrangements, price mandates, store refurb cycles and termination processes align with contract rights and obligations.

If your standard terms need a refresh to reflect business reality, consider a structured Unfair Contract Terms review across your templates to ensure clauses are balanced, transparent and enforceable.

5) Support Struggling Franchisees Early

How you handle distressed franchisees is a reputational and legal risk area. Clear hardship protocols, early intervention and documented options (temporary fee relief, assistance with local marketing, operational coaching) show a good‑faith approach and may reduce the chance of disputes escalating.

If a resale or closure is contemplated, be careful with handover communications and disclosures to incoming franchisees. A structured, documented process helps you demonstrate fairness.

Key Lessons For Franchisees

1) Do Independent Due Diligence - Not Just What You’re Given

Before you sign anything, verify claims and assumptions yourself. Speak to current and former franchisees (not just those suggested by the franchisor), inspect the site at different times, and question assumptions about wages, rent and local competition. Request the raw inputs behind any figures you’re shown.

It’s also wise to have a lawyer conduct a focused review of the franchise documents and draw your attention to unusual terms, fee formulas and practical risks so you’re going in with eyes wide open.

2) Stress‑Test The Financial Model

Build a conservative cash flow that includes realistic wage costs, rent, utilities, marketing levies, royalties, mandated purchases and refurbishment allowances. Then apply a few “what if” scenarios (sales down 15%, wages up 10%, or a higher rent review) to see if the model still holds.

If the system relies on a marketing fund, ask how it’s spent, how often it’s reported, and what local support you’ll get. If answers are vague or inconsistent with the documents, push for clarity before you proceed.

3) Document Every Material Representation

Keep a contemporaneous log of what you’re told - in emails, decks, site visit notes and meetings. If you’re relying on something important (like expected fit‑out timing, the scope of initial training or what “exclusive territory” really means), ask for it to be reflected in the agreement or in a written side letter approved by the franchisor’s legal team.

4) Know Your Levers If Things Go Wrong

If performance dips or relationships strain, return to the contract first. Understand your rights around supply, pricing, local marketing, renewal and exit. If you believe you were misled or treated unfairly, get advice promptly - timelines matter, and early engagement can preserve options.

Many franchise disputes turn on evidence. Well‑kept records of what was said, when and by whom can be crucial if you ever need to establish misleading conduct under Section 18 or draw the court’s attention to the broader fairness of the dealings.

How To Build A Fair, Compliant Franchise Model

Step 1: Map The Franchise Lifecycle (And The Risks)

Sketch your journey from recruitment to renewal/exit and list the interactions that matter: prospecting, disclosure, training, supply, marketing fund administration, support visits, audits, non‑compliance and termination. For each stage, note the legal touchpoints (ACL, Franchising Code, privacy, employment, unfair contract terms) and where human judgment calls are made.

This exercise reveals gaps between “policy” and “practice.” It also makes your legal to‑do list manageable, because you can tackle the highest‑risk touchpoints first.

Step 2: Align Documents, Scripts And Training

Your documents (franchise agreement, disclosure, manuals) should match the story your sales team tells and the support your operations team provides. If you have legacy or brand‑by‑brand inconsistencies, start moving to a unified base set and retrain staff accordingly.

Centralising sign‑offs for sales collateral and introducing periodic refreshers on ACL obligations can reduce inconsistent promises and keep your system out of trouble.

Step 3: Tighten Financial Transparency

For marketing funds, publish clear, periodic reports and explain governance (who approves spend, conflict checks, audit processes). For royalties and rebates, ensure definitions and formulas are precise, and that franchisees understand how they’re calculated in practice.

If you require tech integrations (POS, reporting), document the purpose, data captured and access protocols in plain language. This is not just about compliance - it builds trust.

Step 4: Build Fair Problem‑Solving Processes

Create structured processes for hardship, breaches and dispute resolution. Set timeframes, escalation paths and documentation templates. Fair, consistent processes both improve outcomes and demonstrate that your system acts in good faith.

When you need to enforce rights (for example, post‑termination restraints or de‑branding), ensure the scope and duration are reasonable and reflect legitimate interests. If your current settings are aggressive, consider tailored restraint of trade advice to recalibrate them.

Step 5: Embed Continuous Improvement

Schedule periodic compliance reviews. Treat audit results and franchisee feedback as inputs to system improvement. When issues are identified, fix the root cause (a confusing clause, a training gap, an unrealistic KPI) - don’t just patch over the symptom.

Where changes are substantial, support them with updated contract wording and practical guidance for your field team so expectations stay aligned.

What Legal Documents And Processes Should You Review?

Whether you’re a franchisor tightening your system or a prospective franchisee evaluating an opportunity, the following documents and processes deserve close attention:

• Franchise Agreement: The core commercial terms, fees, territory, supply, renewal and exit mechanics live here. A focused legal review can flag clauses that may be risky, unclear or out of step with the ACL and the Franchising Code.
• Disclosure Document & Annexures: Check that financial disclosures, key suppliers, rebates, marketing fund information and disputes history are accurate and current. Consistency between disclosure and the agreement is essential.
• Sales Collateral & Recruitment Scripts: Anything used to court prospects should be checked against the misleading conduct prohibitions in Section 18 and the false representation rules in Section 29.
• Marketing Fund Governance: Constitutions, approval policies, reporting templates and audit processes should be documented and user‑friendly, not just legally compliant.
• Operations Manual: Ensure the manual reflects actual practice and cross‑references the agreement accurately. Ambiguities here can spill into disputes.
• Standard Form Variations & Side Letters: If you use side letters (rent support, fee holidays, tech upgrades), ensure they are centrally tracked and consistent with your base agreement. This is a common source of inconsistency and perceived unfairness.
• Unfair Contract Terms (UCT) Review: If your franchisees are small businesses, UCT rules bite. A structured UCT review and redraft can reduce challenge‑prone terms and improve enforceability.
• Due Diligence For Buyers/Sellers: For resales and network consolidation, a targeted legal due diligence process helps surface issues early and avoids surprises at completion.

If you’re building or refreshing your franchise program more broadly, engaging a specialist to scope your documents, workflows and training can align your legal foundations with the commercial reality you want - and the regulatory expectations you must meet.

Frequently Asked Questions

Is Unconscionable Conduct The Same As Misleading Conduct?

No. Misleading or deceptive conduct focuses on whether specific representations were false or likely to mislead. Unconscionable conduct looks at the whole relationship and asks whether the conduct was so unfair it offends good conscience. A case can involve both.

Can “Standard” Franchise Clauses Still Be Unfair?

Yes. Even commonly used clauses can be challenged if they create a significant imbalance, are not reasonably necessary to protect legitimate interests, and would cause detriment if relied upon. That’s why a practical UCT review is valuable for both new and legacy agreements.

What If Sales Staff Make Verbal Promises?

Verbal statements can be relied on in misleading conduct claims. Keep recruitment scripts consistent with your documents, train your team, and make it standard practice to capture material promises in writing approved by your legal team.

As A Franchisee, What Evidence Should I Keep?

Save emails, proposals, performance representations, chat logs and notes from calls or site visits. Keep copies of disclosure, annexures and any side letters. A well‑organised record-trail helps assess your options if issues arise.

Key Takeaways

• Unconscionable conduct is broader than misleading conduct and focuses on overall fairness - in franchising, it’s closely tied to how you sell, disclose, support and enforce.
• The Retail Food Group proceedings underline the need for accurate disclosure, transparent fee practices and alignment between documents and day‑to‑day conduct.
• Franchisors should audit recruitment scripts, fee descriptions, marketing fund governance and hardship processes to ensure legal compliance and practical fairness.
• Franchisees should verify assumptions independently, stress‑test cash flows and document key representations before signing a Franchise Agreement.
• Refreshing templates through a targeted Unfair Contract Terms review and keeping materials consistent with ACL requirements reduces dispute risk.
• Structured due diligence and plain‑English documentation build trust across the network and protect both parties when issues arise.

If you’d like a consultation on franchise compliance and documentation, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.