It is commonly accepted that in a franchise relationship the franchisor is the dominant party and the franchisees have few rights and little, or no control, over how the business is run.
It is true that franchise agreements are heavily weighted in the franchisor’s favour. They invariably contain a long list of things that the franchisee must do and not do. They impose few constraints and responsibilities on the franchisor. They dictate how the franchisee must advertise, operate their business and pay franchise fees. There are clauses that restrict the activities of the franchisee when the agreement comes to an end or sells the business. Conversely, there are few controls on the franchisor.
From an operational perspective the franchisor is naturally the dominant party; having business experience, knowledge of the business and the industry in which it operates. The franchisee is often new to business and readily accepts a submissive role. At this stage in the relationship the franchisee is in no position to do other than receive the training that the franchisor provides and comply with whatever rules and practices are being used.
New franchisees are also ready to accept that It is important that the franchisor should have the ability to enforce compliance with the business model so that standards are maintained. This protects the reputation of the business for both the franchisor and the franchisees.
Against this background it is not surprising that some franchisors have been known to over-control, abuse their position and become dictatorial in their management of their franchisees. This approach may initially succeed but ultimately it is a recipe for disaster.
The advent of social media brought about a major sea-change for the franchisor-franchisee relationship and has hastened the demise of franchisors who use unreasonable force to dominate their franchisees. Divide and rule is not as easy to sustain as it was before WhatsApp and Facebook came into everyday use. In seconds, franchisees can now share grievances with their peers and seek advice and guidance from industry lawyers and consultants. When an unnecessarily harsh or unjust decision by a franchisor is exposed, successfully challenged and brought into the public domain other franchisees will be quick to raise similar issues. It is hardly surprising that if a franchisor has adopted an unreasonably harsh and dictatorial management style towards their franchisees they will respond in a similar manner if they are presented with the opportunity.It is then very difficult for the franchisor to regain control.
For this reason, franchisors should think very carefully before terminating a franchise agreement, imposing a penalty or trying to enforce a post-termination clause. They should make sure that the financial projections that are used for recruitment, are accurate, relevant to current trading conditions and can be substantiated. It is important that the franchise agreement is regularly reviewed by a specialist franchise lawyer so that it complies with any changes in legislation. Courts do not tend to be sympathetic towards franchisors who ask for procedural or drafting errors to be overlooked or, if there is ambiguity, interpret a clause in their favour. Also, they should fully comply with the terms of a franchise agreement that they, themselves, have required the franchisee to sign. Openness and transparency are important and a far better strategy than secrecy and making futile attempts to enforce non-disclosure agreements.
If a franchisor does become involved in a dispute with a franchisee, they should try hard to resolve it amicably and without delay. That isn’t to suggest that capitulating is always the best policy, but firmness should always be tempered with fairness. The objective at all times should be to consider the long-term nature of franchise agreements and the wider implications of making an unnecessarily harsh decision.
In today’s franchising environment a sensible franchisor should seek to collaborate and work harmoniously with franchisees and try to avoid unnecessary confrontation. The days are gone when a franchisor needed to make an example of a recalcitrant franchisee to ‘send a message’ to their network. If it has done nothing else, social media, has consigned that strategy to the history books.