Why is the ‘system compliance and image’ clause so important?

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Table of Contents

• What does the clause require exactly?
• What other means of compliance are used in franchises?
• Conclusion

It is very important, both to the consumer and the parties of a franchise, that there be consistency in the presentation, level of service, branding, pricing, and basically any aspect of a franchise. Given that there are many franchisors that are actually corporations, the requirements found under the ‘system compliance and image’ clause applies to all employees of the company.

What does the clause require exactly?

There are certain standards that the franchisee and its employee are expected to meet. These standards relate both to the general compliance of the franchisee and its employees to the agreement, and the overall image of the franchise. The idea is to ensure that all trademarks of the franchise are used in the correct way; that presentation of staff (uniforms etc) is of a high and consistent standard; and that confidential information remains confidential and is only used in the conduct of the franchised business. The clause addresses a number of legal concerns of the franchise, such as the franchise’s intellectual property and the use thereof, and the privacy of any trade secrets that might be valuable to the company.

The ‘system compliance and image’ clause also ensures that the franchisee is aware of, and agrees to, the obligation to comply with all laws, regulations, and codes of conduct. It also requires the franchisee follow all instructions, directions, requirements and requests made by any statutory, governmental, industry or regulatory body. On top of this, the clause will typically require that the franchisee be on top of all permits and licences, and that all permits and licences are kept up-to-date at all times.

What other means of compliance are used in franchises?

The Operations Manual is a very important tool for franchisees, as it clearly states what is expected of a franchisee and its employees. The manual is the responsibility of the franchisor. It must, at all times, be legible and clearly set out a useful overview of the regulations, laws and company standards. It also needs to include a guide on the operations of certain branches within the company and include some relevant examples that might apply to the company.If you’re a franchisor looking to create an Operations Manual, it might be worth having a franchise consultant help you compile the relevant information.

Once you have all the information, you should contact a franchise lawyer to go over the finer details and ensure there is consistency with the disclosure document and the head franchise agreement. A franchise lawyer will also be able to ensure that the franchisor is not going to be liable for the actions of the franchisee. Normally, the franchise agreement will give to the franchisor the right to inspect the premises and make sure the franchisee is fulfilling their duties. It’s essential that the franchise agreement include measures to enforce the organizational standards imposed on the parties, to such an extent that, if the standards are not strictly complied with, the agreement can be terminated.

Conclusion

The ‘system compliance and image’ clause is important for both parties to a franchise agreement. It ensures that the franchisee has all the relevant information to get going, and also guarantees that the franchisee will take responsibility for how it uses the company’s intellectual property and for its overall compliance with the operations manual and franchising code. If your franchise agreement needs to be reviewed, contact LegalVision on1300 544 755 and speak with one of our experienced franchise solicitors.