Franchise agreements often seem to be weighted in the franchisor’s favour, but franchisees have several key rights protecting them from unfair treatment after they invest their money. So, what legal standing does a franchisee have in the UK?
Franchise agreements set out both the franchisor’s and franchisee’s rights when they initiate a relationship, but they usually include a huge number of rules and regulations for investors to follow. In fact, the franchisor can terminate the contract if the franchisee doesn’t adhere to their business standards, fails to secure the appropriate licences, neglects to pay fees or goes bankrupt.
All franchise agreements are different and may differ in the privileges they give investors; for example, it’s up to the franchisor to put in place measures related to workplace harassment. An individual franchisee’s rights will be outlined in their contract, so it’s always worth double-checking it and perhaps even negotiating with the franchisor before signing on the dotted line.
What are a franchisee's rights?
Franchisee rights may vary from business to business, but there are some common conditions included in the majority of franchise agreements. Here’s what you can expect if you become a franchisee:
1. Honesty - Franchisors provide a franchise disclosure document (FDD) to give prospective investors information about their business, but there aren’t any legal conditions surrounding the details they have to give. On the other hand, franchisors must not be misleading or provide inaccurate or exaggerated business projections. And if a franchisee believes they invested as a result of false information, they can take action against the franchisor.
2. Training and support - Franchisees have the right to high-quality training and support - at least in the initial stages, if not throughout their contract term. The franchisor must disclose how much training and support they are prepared to offer before investors join the franchise, and should always provide guidance materials, such as operations manuals.
3. Territory exclusivity and online sales – It’s common for franchisors to grant exclusive territories in franchise agreements; it stops investors selling products or services further afield and competing with other franchisees. But franchisees should still be allowed to make ‘passive sales’ they don’t directly initiate. The European Commission categorises online sales as ‘passive selling’, so franchisees have the right to sell their goods on the internet.
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4. Intellectual property - Once a franchisee has signed a franchise agreement, they gain the right to use the business’s brand logo and other elements of its intellectual property. They’ll use this IP not only to benefit from the company’s existing level of customer awareness, but also to create branded products, such as marketing material and staff uniforms.
5. Fair supplier prices - Sometimes, franchisors stipulate which suppliers franchisees can use in order to maintain consistency across their business network. But branch owners should have the right to competitive pricing and the franchisor should not unexpectedly transfer to a supplier with higher or unreasonable prices.
6. Limited pricing controls – Franchisees have the right to choose minimum prices for their products or services, as franchisors are not allowed to dictate them. In some cases, they can introduce short-term promotions, but usually franchisees set prices themselves.
7. Franchisor loyalty - Franchisors should support their franchisees and make a reasonable effort to help them succeed in business - after all, it’s in their best interest as the owner of the brand. If a franchisor demonstrates bias or unethical behaviour, or makes sudden changes to their operational standards, the franchisee may be within their rights to request a franchise agreement termination.
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8. Contract renewal - Franchisees should have the right to renew their franchise agreement, provided they’ve upheld its conditions throughout their contract term. Although this rule is subject to interpretation, franchisors should not prevent investors from renewing their agreement unless they’ve previously breached it or failed to pay fees or meet its conditions.
9. Contract termination - It’s common knowledge that franchisors can terminate a franchise agreement if the franchisee breaches it - but the reverse is also true. If the franchisor fails to uphold the contract terms, take measures to protect the franchisee’s business or territory, commits fraud or goes bankrupt, the franchisee can end the franchise agreement.
10. Unit resale - While franchisees have the right to sell their business during the term of their franchise agreement, they can only select a buyer approved by the franchisor. Just as investors launching new units are carefully vetted before they can join the franchise, anyone taking on an existing business - and therefore becoming a franchisee - must be approved.
Running your own business as part of a franchise
When you become a franchisee, it’s vital you have an in-depth understanding of your rights and obligations under the franchisor’s business model. If you don’t know what you’re signing up to, you could be hit with nasty surprises further down the line.
Of course, most franchisors have nothing to hide and work with the interests of their franchisees in mind. In an ideal world, the franchisor and franchisees work in tandem to grow the brand as a whole.
We always recommend you consult a solicitor with experience of franchising. They’ll be able to go over the franchise agreement and flag up any potentially problematic clauses. They may even be able to help you negotiate with the franchisor and resolve any disputes throughout your contract term. You can find a list of approved specialist advisors on the British Franchise Association’s (BFA) website.
Point Franchise is a handy resource for anyone interested in becoming a franchisee or developing their business with the franchise model. In our article section, you’ll find guides on all areas of the franchising world. Why not broaden your knowledge by finding out how franchisees might breach their franchise agreement?
Alternatively, keep up to date with developments by exploring our news page.
Alice Tuffery, Point Franchise ©