NAVIGATING COMPETITION LAW COMPLIANCE

Proceedings filed in September 2025 by the Commerce Commission against Harcourts Group and four Christchurch franchisees have focused attention on how the Commerce Act applies to franchise networks. 

The Commerce Commission alleges Harcourts Group and the franchisees entered into agreements that influenced prices the franchisees charged to customers, including commission rates.

Because the franchisees competed for customers, these agreements are alleged to amount to cartel conduct (specifically, price fixing) under the Commerce Act.

Franchises are not exempt

Commerce Commission Chair Dr John Small has emphasised the Commission is not seeking to challenge the franchise model, which he described as “tried and tested” and often beneficial for consumers. However, Dr Small has made it clear that when franchisees compete with each other, the Commerce Act’s cartel prohibitions apply just as they do to any other business.

Commentators have been quick to note that the Harcourts case is a timely reminder for franchisors to ensure their networks comply with New Zealand’s cartel laws.

That said, if you are uncertain about exactly how those laws apply in a franchise setting, you are not alone.

Understanding the relevant provisions of the Commerce Act and the rationale behind them can be challenging. The rules are complex, with multiple prohibitions and exceptions.

Recognising internal competition

Even for those familiar with New Zealand’s cartel laws, applying them in a franchise context is not always straightforward.

Cartel laws prohibit certain agreements between competitors. Yet viewing franchise relationships through a competitive lens can feel at odds with the cohesive culture franchisors seek to foster.

Franchise networks also often operate in very competitive markets, where the key focus is outperforming rival brands and independent businesses (interbrand competition). In this context, the idea of safeguarding competition between members of the same franchise network (intraband competition) can seem counterintuitive.

Operational impacts and legal risks

In the current climate, some franchisors are understandably hesitant to enforce certain provisions in their franchise agreements, due to uncertainty around how the Commerce Act applies. However, failing to enforce key provisions can create significant operational challenges, undermining network performance and cohesion.
Ironically, under-enforcing contractual terms can also increase legal risk. This is because under the Commerce Act, a key question is whether cartel provisions are ‘reasonably necessary’ for the effective operation of the network. If franchisors stop enforcing cartel provisions, this may suggest the clauses are not ‘reasonably necessary’ (see step 3 below).

What follows

The Harcourts case underscores the need for franchisors to understand the cartel prohibitions in the Commerce Act and how they apply to franchises.

The remainder of this article provides a summary of some of the most essential information:

• what New Zealand’s cartel laws prohibit,
• the relevance of the laws in a franchise setting,
• and key compliance risks. 

New Zealand’s competition law framework

Competition laws are concerned with ensuring that markets work well for consumers, by protecting the processes by which businesses compete with each other. 
In New Zealand, competition is regulated under the Commerce Act, which bans anticompetitive behaviour, including cartel conduct.

Cartel conduct

Cartel conduct involves competitors fixing prices, dividing markets, or restricting output. These practices are prohibited because they can be very harmful from an economic perspective, translating into higher prices and fewer choices for consumers.  

What is illegal?

The Commerce Act prohibits agreements between competitors involving:

• Price fixing – agreeing on prices, discounts, or fees.
• Market allocation – agreeing not to compete for certain customers or areas.
• Output restriction – agreeing to limit supply of goods or services.

Formal and informal agreements

The cartel laws apply to all agreements - written or verbal.  It is important to appreciate that informal arrangements or agreements reached in casual conversation could breach the law.

The application of cartel laws in a franchise setting

When reviewing franchise operations for compliance with cartel laws, the following questions and action steps can provide a useful framework:

1.  Is there any internal competition within the franchise network? Identify where franchisees compete with each other or the franchisor.

2.  If there is internal competition, are any limits placed on it which may constitute cartel provisions? Consider restrictions agreed directly between franchisees, as well as those coordinated indirectly through the franchisor. This indirect coordination - known as a ‘hub-and-spoke’ arrangement - occurs when the franchisor acts as the ‘hub’ and facilitates or enforces conduct among franchisees (the ‘spokes’), such as uniform pricing or unjustifiable territorial restrictions.

3.  If cartel provisions exist, are they legally permissible? They may fall within one of the statutory exceptions in the Commerce Act.

Step 1: Identifying internal competition

Cartel laws apply to agreements between competitors, so the first step is to understand where competition exists within the franchise network.

For example, franchisees may compete with each other where agreements do not grant exclusive territorial rights.

Franchisors can also compete with franchisees if they operate company-owned outlets alongside franchised locations or sell directly to customers online.

Step 2: Identifying any cartel provisions

Cartel provisions can appear in franchise agreements, manuals, and policies. Common examples include:

• Clauses setting minimum or fixed pricing.
• Territorial restrictions beyond what is necessary.
• Rules limiting which customers franchisees may approach.

Beyond formal documents, it is also important to review:

• Pricing guidelines, promotional campaigns, and discount structures.
• Supply chain arrangements imposing uniform pricing.
• Training materials framing pricing or territorial limits as ‘best practice’.
• Digital platforms or POS systems setting prices or allocating customers.
• Franchise Advisory Councils and communications (emails, WhatsApp groups). Any forum where franchisees discuss prices, territories, or customers can create risk.

Remember that cartel provisions do not need to be in writing in order to breach the Commerce Act. Verbal agreements and informal arrangements should also be considered. 

Step 3: Confirming whether agreements are legally permissible

Finally, not all cartel provisions are unlawful. For example, the ‘collaborative activity exception’ permits their use in the franchise context where they are not aimed at reducing competition and are reasonably necessary for the franchising model. Depending on context, this may apply to agreements such as:

Exclusive territories, where they are reasonably necessary for the efficient operation of the franchise network.

Short-term national pricing campaigns supporting genuine promotions.

Get great advice!  

Given the complexities of this area of law, and the potential costs of getting it wrong, there can be significant practical benefit in having a competition law specialist review your franchise agreements and operations. 

Investing in expert advice will give franchisors and franchisees confidence that their activities are compliant, and that the franchise agreement and associated documentation can be safely relied upon.  

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Your questions answered

Email anna@annaryan.co.nz with your queries on Commerce Act compliance in franchising