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Last week in Australia’s federal Parliament, Member for Gilmore, Joanna Gash hit out at gag orders in franchise agreements designed to shut down access to remedy.
This constitutes an effective gag on the franchisee... I suspect that having such an instrument in place delivers the franchisor even more protection from legal remedy.
If the franchisee signed a deed of silence, how could they report any failure on the part of a franchisor to be upfront, let alone seek a remedy for damages? If that is not a standover tactic, what is? Joanna Gash MP
Gag orders are used throughout the franchise industry to protect intellectual property. Well that’s how the argument goes anyway.
In reality, they are a tool to protect franchisor sales misinformation. They are used when a prospect is considering a franchise offering, once a contract is signed and then they install post-franchise protection of bad faith dealings.
And as Mrs Gash pointed out, they attempt to shut down the right to dispute remedy. But they also contradict the intent of disclosure to allow access by prospective franchisees to existing and past franchisees bound by a gag order. A franchisee can be sued or terminated or both should the break their gag agreement.
Mrs Gash queried the lack of effective action by the Gillard Government;
It begs the question as to whether there is another agenda playing in the background and who the primary beneficiaries could be.