Technology is changing the franchising world as we used to know it, with customer loyalty programs, point-of-sale (POS) systems and online training manuals becoming commonplace. However, as a franchisee, it is crucial to understand the risks associated with this technology. A malware attack can disable your systems, while intrusive marketing practices have the ability to alienate your customers. This article takes an in-depth look at your technology agreement.
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What is a Technology Agreement?
A technology agreement is a catch-all term referring to the supply of a particular type of technology to a business. For example, this can include:
- software licence agreements;
- POS licence agreements; or
- website development agreements.
Technology agreements usually involve the transfer of customer data to a third party software provider or supplier. Common issues which arise from this relate to:
- privacy;
- intellectual property;
- warranties and support services; and
- indemnities.
Since many of these agreements are prevalent in a franchise context, it is essential for franchisees to be aware of and comprehend the potential issues that may arise. The following sections unpack each of these issues. We also provide practical steps that franchisees can undertake for ongoing compliance with the law.
1. Privacy
As a franchisee, you are likely familiar with customer loyalty programs. These loyalty programs collect a substantial amount of customer data. They enable customers to redeem points earned through these programs on your products and services or access special offers. However, as a franchisee, you must be aware that collecting, storing, using or disclosing your customers’ personal information means you are required to comply with the Privacy Act 1988 (Cth).
Additionally, you have further obligations under the Australian Privacy Principles if your franchise has an annual turnover of 3 million or more, or you:
- provide a health service and hold health information other than in an employee record;
- buy or sell personal information; or
- are a contracted service provider for a Commonwealth contract (compliance will only be necessary for activities for the purposes of a Commonwealth contract).
This means that as a franchisee, you should promote a culture of transparency and accountability with your customer base. You can achieve this by maintaining a privacy policy that is accessible to your customers. This privacy policy should set out the following:
- how the franchisee uses the customers’ personal information;
- whether the personal information will be shared with third parties; and
- how a customer can complain about a data breach.
2. Intellectual Property
The franchisor will often own and control the intellectual property associated with your franchise business. This includes elements such as that used on social media, confidential information and customer data. Typically, the franchise agreement includes a clause that prohibits franchisees from engaging in actions that may harm the goodwill or reputation of the franchise.
Therefore, to ensure you are not in breach of your franchise agreement, it is essential to understand what you can and cannot do on social media. For example, your franchise agreement and operations manual may include a prohibition on creating an Instagram account for your franchise.
3. Supplier Warranties and Support
If and when POS systems break down, they can significantly affect your sales.
As a prospective franchisee, you should contact the existing franchisees to enquire about the POS system used and whether they are happy with the system. You should be able to contact them using the information in your disclosure document.
You should also ensure that the POS provider provides adequate response times. Additionally, any costs incurred due to a breakdown should be incorporated into the system’s ‘subscription cost’ and should not result in further fees for you.
It is also crucial to note that the Australian Consumer Law (ACL) provides you with protections in relation to the operation of the POS system. For example, ACL statutory warranties will apply to the POS systems, including fitness for purpose and protection against defects. If your product does not perform in a manner that would be reasonably expected, you should contact your franchisor and raise the issues as soon as possible.
4. Indemnities
It is not common for franchisors to provide indemnities for loss or damage arising from defects in products. As such, it is important for franchisees to understand that any compensation for this will likely come from the supplier.
You should also understand that it is common for franchisees to provide indemnities to the franchisor for any breach of the franchise agreement. For example, consider the scenario where a franchisee experiences a breach of data, leading to the leakage of customers’ personal information. This breach can result in damage to the franchise network.
Best Practices for Safeguarding Information
You should take proactive steps to ensure that you are in compliance with your privacy obligations.
Key Takeaways
A lack of knowledge or awareness is not an excuse for breaching your franchise agreement, sharing confidential information or customer data. Given this, it is necessary that you speak to a franchise lawyer who can help you understand your obligations and ensure you comply with your technology agreements. Small businesses should always comply with the franchising code and other contracts with their franchisor.
For assistance drafting a technology agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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