Franchises have a proved and popular and enduring model for pharmacy. The number and variety of those agreements coming across my desk suggests that the allure of the franchise is not fading and that the model will continue to go from strength to strength.

Franchise agreements are notoriously franchisor friendly. As a result of the provisions of the State and Territory Pharmacy Acts pharmacy franchises are significantly fairer to the franchisees than in most industries. The execution still usually involves a giant leap of faith where the franchisees legal reservations about the terms of the document, quite considerable concerns in some cases, are outweighed by the perceived commercial advantages of the relationship.


While that leap of faith requires an element of trust and goodwill a potential franchisee should be mindful of what can and will occur in the event of a breakdown in that relationship of the franchise simply running its course.

The relationship between the franchisor and franchisee is contractual but in most franchisee instigated litigation the franchisee’s claim is based at least in the alternative on breaches of the Trade Practices Act of common law remedies outside the franchise document itself.

In some cases this is partly because the franchisor’s obligations are generally so vaguely defined that it is difficult to identify a discernable breach but more often because the franchisee’s right to terminate the agreement, as defined by the agreement, is limited of in some cases non-existent.

The rights of a franchisor to terminate are generally expansive and clearly defined. Regrettably the same is not the case for the franchisee. It is not uncommon in franchises for there to be no right for the franchisee to terminate. On the general principles it is difficult to justify the difference in rights.

At the very least a franchise agreement should entitle the franchisee to terminate the agreement for a serious breach by the franchisor which remains unremedied after reasonable notice has been given or and in circumstances where the franchisor becomes insolvent.
The consequences of termination or expiry of the agreement by effluction of time also require some serious consideration. Those consequences in some pharmacy franchises include:

  • The removal of the franchise image including shop refit, removal of signage and in some cases surrender of telephone numbers and email addresses;
  • A right on the part of the franchisor to acquire the business for a consideration excluding goodwill; and
  • Restraints on the franchisee from operating a similar business or any pharmacy business in proximity to any other franchised store.

While it is understandable that the franchisee should dissociate itself from the franchise image it is difficult to understand why a telephone number should be surrendered. It is also difficult to understand where a pharmacist who operated a franchise store in say Brisbane should be restrained from operating in Perth.

While franchisors are generally reluctant to make wholesale changes to franchise documents some of the more objectionable provisions listed above are capable of being changed and we have found most pharmacy franchisors not unresponsive to reasonable requests.

If a franchisor will not remove an offending clause it becomes a matter of determining the point from which the leap of faith cannot be safely made.

Steven Holzberger – Consultant
Level 10, 15 Adelaide Street, Brisbane QLD 400
Email: stevenh@mpsolicitors.com.au
Phone: 3210 1833