ADVICE
T
he British Franchise Association (bfa) has been engaged in a consultation process with its members concerning a new European Code of Ethics. It is
fair to say that the new proposed code is not radically different from the existing code, but there are a couple of interesting new concepts. These were introduced in an attempt to reflect what the European Franchise Federation (EFF) determines to be current good franchising practice. As the consultation process has not yet been concluded, we cannot say with certainty whether any provisions of the new code will be amended. For that reason, I do not propose to comment on the new code as a whole but thought it useful to highlight some of the new provisions and their possible implications.
One new commitment for franchisors is
a requirement to inform prospective and individual franchisees of the franchisor’s internet communication and/or sales policy. Many franchise agreements now contain clauses regulating the use of social media in relation to the franchise business. The inclusion of this commitment in the new code is an example of how the EFF has sought to reflect current practice. Internet sales policies are perhaps more of a challenge as technology moves at a rapid pace and distribution methods often cut across traditional territorial provisions. In drawing up their own internet sales policy, franchisors may have to consider how to control other e-commerce channels from impacting adversely
upon the individual franchisee’s sales activities. If the new code requires the franchisor to inform its franchisees of its internet sales policy, care will need to be taken to represent the sales activities to be carried out by the franchisor accurately. The drafting of clauses within the franchise agreement dealing with such issues will require a degree of flexibility to enable the franchisor to adapt to new technology and e-commerce distribution channels throughout the term of the franchise agreement.
Another commitment on the part of the franchisor is to use all reasonable means to prevent any wrongful use or transmission of knowhow to competing networks so as to avoid prejudice to the interests of the network. On the face of it this appears a reasonable requirement of a franchisor granting a licence of intellectual property rights, but thought should be given to the possible interpretation of the commitment accepted by the franchisor. How far does an obligation or commitment that the franchisor must use “all reasonable means” require the active enforcement of restrictive covenants in the franchise agreement? If a franchisor uncovers evidence that a franchisee, whether during its franchise agreement or after termination, is disclosing or using knowhow for the benefit of a competing business, is the franchisor mandated to take enforcement action, irrespective of the likely expense and any other commercial considerations?
It is important to bear in mind that the code sets out an ethical framework in which
the franchise relationship should operate if, in the case of UK franchisors, the franchisor is a member of the bfa. In itself it does not create a contractual relationship between franchisor and franchisee and very rarely is the wording of the code incorporated wholesale into a franchise agreement. Much of the code provides for commitments
that are eminently sensible and, in particular, it is interesting that the new code seeks to place a commitment on franchisees to take responsibility for preparation of their own business plans and to recognise their responsibilities as fully independent entrepreneurs. The new code goes further to require a prospective franchisee to be truthful and transparent in the information about their experience, their financial capabilities, their training, and background they provide for the purposes of their selection by the franchisor. Many franchisors will welcome the inclusion of commitments on behalf of franchisees to balance the responsibilities between parties. If the new code is adopted how should franchisors respond? It would be sensible to review their system’s franchise agreement in the light of the changes to ensure that the agreement includes provisions reflective of the amended code. For the majority of franchisors, and especially those who already satisfy the bfa’s membership accreditation standards, this should not be an onerous task. Instead, it could provide a useful opportunity to ensure that the franchise agreement reflects the best possible operating practices for the benefit of franchisor and franchisees. n
Jane Masih
Director and head of franchising Owen White Solicitors
jane.masih@
owenwhite.com
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