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Technology is transforming the franchise world. Customer loyalty programs, point-of-sale (POS) terminals that sync with stock-ordering systems and online training modules improve operational efficiencies and drive greater brand engagement. But franchisees should also understand the risks associated with technology — a malware attack can disable your system and intrusive marketing practices can alienate your customers.

A technology agreement is a catch-all phrase referring to the supply of a particular type of technology to a business, for instance:

  • software licence agreements;
  • POS licence agreements; or
  • website development agreements.

These types of agreements often involve the transfer of customer data to a third-party supplier or software provider. Common issues that can arise include:

  • privacy;
  • intellectual property;
  • warranties and support services; and
  • indemnities.

These types of agreements can often be found in a franchise context. We unpack each of these terms below as well as practical steps that franchisees can take to ensure ongoing compliance with the law.

1. Privacy

Franchisees are collecting an increasing amount of customer data, particularly through loyalty programs. Customers can usually redeem points earned through these programs on products in-store or to access special offers. When collecting, storing, using or disclosing personal information, franchisees must comply with the Privacy Act 1988 (Cth). Personal information is information that can be used to identify an individual such as email addresses that you collect when customers join a loyalty program or enter into a competition.

If your franchise has an annual turnover of $3 million or more, you will also have additional obligations under the Australian Privacy Principles. Franchisees should promote a culture of transparency and accountability with their customer-base by maintaining an up-to-date privacy policy. The policy should set out:

  • how the franchisee uses a customer’s personal information;
  • whether the franchisee will share the information with any third parties; and
  • how a customer can complain about a data breach.

2. Intellectual Property

The franchisor will usually own and control the IP of the franchise business including social media accounts, confidential information and customer data. The franchise agreement will typically contain a clause prohibiting the franchisee from acting in a way that damages the goodwill or reputation of the franchise. It’s important to understand what franchisees can and cannot do on social media. For instance, your franchise agreement or operations manual may not permit you to set up a Facebook page.

3. Supplier Warranties and Support

When POS systems break down or don’t function as intended, they can cripple sales.

Franchisees should contact existing franchisees (listed in the disclosure document) and confirm that the technology used by the network does not cause any issues and that they are happy with the level of support the suppliers provide.

Franchisees should also ensure that the POS provider offers adequate response times and that any incurred costs are incorporated into the system’s ‘subscription cost’.

Importantly, the Australian Consumer Law protections, such as statutory warranties, will apply to POS systems and similar technologies. These warranties include fitness for purpose and protection against defects. If any product does not perform as expected, contact the franchisor or supplier and raise these issues promptly.

4. Indemnities

Indemnities for loss or damage arising from defects in products the franchisor supplied or approved are often non-existent. It’s then important franchisees understand that the primary claim for any defect in supply will be against the supplier.

Franchisees should also note that they may indemnify the franchisor under the franchise agreement for loss or damage arising from a breach of the operations manual or franchise agreement.  This is particularly relevant if a franchisee experiences a data breach that leaks their customers’ personal information that then causes damage to the network.

Best Practices for Safeguarding Information

Franchisees should take proactive steps to create a culture of privacy awareness and compliance in their business by asking the following questions:

  • Have you spoken with the IT provider to better understand how the backup system works and how data is protected?
  • Review the confidentiality clause in your franchise agreement – do you know what this captures?
  • Have you received adequate training in the franchise systems?
  • Does the franchise have a support team available to answer any questions?
  • Can you answer questions and direct your customers to the appropriate person to lodge a complaint about the handling of their data?
  • Are you familiar with how the franchise uses and stores your customer’s personal information?

***

Ignorance is no excuse for inadvertently sharing confidential information or customer data. It’s critical that you speak with a franchise lawyer who can step you through these requirements to make sure you are complying with the technology agreement. LegalVision’s franchise lawyers assist both franchisees and franchisors with their legal needs. If you have any questions, get in touch on 1300 544 755 or fill out the form on this page.

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