Being a franchise business owner is a distinct business arrangement with many advantages. However, it is also important to note that with being a franchise owner comes particular ongoing obligations that you should be aware of. The nature of these obligations may differ between industries and the nature of your business. As such, it might be relevant to inquire into any laws or regulations that might apply to your franchised operation. In this article, we will highlight the key areas that your ongoing obligations are derived from as a franchisee.
Franchise Agreement and the Franchising Code of Conduct (Code)
A key source of your legal obligations and responsibilities comes from the Code. The Code regulates the conduct of both franchisees and franchisors. As such, it also regulates the franchise agreement between a franchisee and franchisor. The contractual relationship between the parties is another key source of a franchisee’s obligations and responsibilities.
Your franchise agreement and the Code cover a range of your obligations as a franchisee. You must understand and become familiar with these obligations. For example, your obligations concerning handling a dispute are regulated by the Code. The Code requires you first to try to resolve the dispute with the franchisor by writing to them outlining:
- the nature of the dispute;
- what outcome you want; and
- what action will settle the dispute.
If you and the franchisor cannot agree on an outcome within three weeks of this notice, either party may refer the matter to mediation.
Operations Manual
Further to a franchise agreement, most franchise systems also have an operations manual. This operations manual will specify the standards and procedures of the franchise system, as well as your particular obligations in the operation of your franchise. In contrast to the franchise agreement, the operations manual will often cover the business’s day-to-day operations and practical matters and usually goes into quite a bit of detail. For example, an operations manual may include:
- preferred suppliers;
- software requirements;
- marketing strategies;
- prescribed forms and documents; and
- store layout and maintenance requirements.
This operations manual, in most circumstances, forms a binding contract between you and the franchisor. This is due to a clause in the franchise agreement requiring the franchisee to adhere to the operations manual. As such, you must understand the obligations which arise from your operations manual. If you do not understand an aspect of your manual, you should raise this with the franchisor. Many franchisors would be willing to provide franchisees with training sessions concerning aspects of the manual.
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Good Faith
In addition to the above contractual obligations that stem from your franchise agreement and operations manual, the Code mandates that you and the franchisor must act in good faith. This good faith obligation extends to all of your dealings with the franchisor. A failure to act in good faith may breach the Code, and give rise to the franchisor’s right to bring an action against you or terminate your franchise agreement.
Acting in good faith includes acting, for example:
- in an honest manner;
- reasonably in cooperating with the franchisor;
- in a commercial manner (i.e. taking into account the franchisor’s commercial interests); and
- in accordance with your genuine business interests (rather than a hidden, non-commercial agenda).
Acting in bad faith includes, for example:
- making false claims;
- unfairly or aggressively pressuring the franchisor;
- attempting to terminate your franchise agreement on baseless claims; or
- failing to engage in the dispute resolution process properly.
Other Laws to Note
Beyond the Code and your contract, you remain a business owner, and you are subject to further laws and regulations that apply to business owners generally. For example, these may include:
- employment laws;
- workplace health and safety laws;
- licensing laws;
- food safety laws; and
- privacy obligations.
As discussed above, further laws specific to your industry may apply to you. For example, if your franchise sells or handles food, particular food safety laws will apply to you. You must note which laws apply to your particular business and industry, to ensure you are meeting your obligations.
Employment Laws
If you hire employees to work at your franchise, you must comply with the relevant employment laws, including the Fair Work Act 2009. This legislation imposes particular standards and requirements on you as an employer. You need to also be aware of what Industry Award applies to your employees and ensure that you comply with them.
Therefore, employment laws will be relevant to your employees:
- salary;
- leave;
- termination notice periods;
- entitlements; and
- dispute resolution.
Compliance with employment laws is important in every business. However, there is often a strict requirement to comply with employment laws in a franchise system. In certain circumstances, the franchisor may also be held liable for breaches of employment laws by its franchisee.
Work Health and Safety Laws
Workplace health and safety (WH&S) laws also apply to franchise businesses. For example, WH&S laws provide that as an employer, you have an obligation to:
- ensure there is a healthy and safe working environment;
- take steps to proactively protect all employees, contractors and visitors from injury and illness; and
- promote welfare and wellbeing among these groups.
Depending upon your industry, different steps may be required to comply with the above. As a business owner, you should take this into account and consider what may be required. Following this, to implement these laws, you are required to have a WH&S policy outlining your procedures and expectations.
Food Safety Laws
As stated above, depending upon the nature of your franchise, different laws and obligations may apply to you. For example, if you operate a franchise that sells or handles food, food safety laws regulate how you handle, manage and sell your food products. This could relate to all aspects of your business, including transportation, storage and the quality of the food.
Licensing Laws
Again, depending on the nature of your franchise, you may be required to comply with licensing laws. For example, this includes:
- liquor licence: if you sell alcohol at your premises, you are required to have a valid liquor licence. Any employees who handle this alcohol must have an additional responsible service of alcohol qualification.
- outdoor seating licence: if you have outdoor seating at your franchise business, you may be required to obtain an outdoor seating licence.
Privacy Laws
If you collect any personal information within your franchise business, you may be required to comply with Australian privacy laws. These laws regulate how information is collected, used and stored. An important aspect of this is maintaining a privacy policy that clearly states:
- what personal information your franchise business collects;
- whether you share this information with any third parties;
- how individuals can correct any of the personal information provided;
- how individuals can make complaints of any alleged privacy breaches; and
- your process for dealing with complaints concerning your use of personal information.
Key Takeaways
As a franchisee, you must be aware of your obligations and responsibilities under the Code and Franchise Agreement and any other laws that may apply to you. Often, a lack of awareness is not a sufficient justification for non-compliance. A failure to comply could result in a breach notice being issued to you by the franchisor, which could escalate and impair your relationship with the franchisor.
If you need assistance understanding your legal obligations, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1800 532 904 or visit our membership page.
Frequently Asked Questions
Yes, you have obligations under your franchise agreement and the Franchising Code of Conduct. You also have obligations under any laws applicable to your business.
Yes, you have additional obligations. For example, if your franchise serves food, you must follow food safety laws, as well as all other applicable laws.
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