As a franchisor, your business relies on the operations manual as its guiding document. It directs franchisees on how to conduct their day-to-day operations. This includes aspects such as presentation, marketing, reporting, and even the offering of fries with orders. Moreover, it is common for franchisors to regularly modify the manual’s terms throughout the duration of most franchise agreements. However, the question arises: are these changes legally enforceable? This article will unpack the franchise operations manual and identify the relevant factors determining whether an amendment is legally binding.
What is the Operations Manual?
Contrary to the franchise agreement given to potential franchisees, the operations manual of your franchise does not function as a standalone legal document. Instead, it serves as a comprehensive guide detailing the systems and processes of your franchise.
Terms of the Franchise Agreement
Whilst the operations manual is not legally binding of its own accord, it is generally made so by your franchise agreement. Almost all franchise agreements include clauses that integrate the operations manual’s terms. They will also mandate franchisees to adhere to it in their business operations. When you and the franchisee sign the agreement, this incorporation process makes the terms of the operations manual legally binding on the franchisee. Consequently, non-compliance with the operations manual constitutes a breach of the franchise agreement, potentially granting you the authority to terminate the agreement.
Continue reading this article below the formAmendments to the Operations Manual
Franchisors often make updates to the operations manual binding through a term in the franchise agreement, which grants them the authority to enforce such changes. Such clauses in the franchise agreement enable franchisors to unilaterally modify the franchise agreement, including the operations manual, without notifying or consulting franchisees. However, recent changes to contract terms laws have deemed this unfair. Therefore, the enforceability of such clauses now depends on their precise wording and the application of the Franchising Code of Conduct (the Code). As a franchisor, you should carefully review clauses that change the operations manual binding on your franchisees to ensure fairness. This includes providing reasonable notice and time for your franchisees to implement the changes to their systems and processes.
Notice of Change
As a franchisor, it is crucial to act in good faith when dealing with franchisees consistently, and the inclusion of terms from the operations manual into the franchise agreement is no exception. It is commonplace for “reasonable notice” to be required before any substantial change is enforceable. The definition of “reasonable” hinges on factors such as the nature of the change, the number of franchisees, and the cost of implementation. Your franchise agreement should include a provision stipulating that you will provide reasonable written notice for any changes. Unless the franchisee formally objects in writing within a specified period, such as 14 days, they will be deemed to have accepted these changes.
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Disclosure of Any Foreshadowed Cost
The Code also requires disclosure of all costs that the franchisor could reasonably anticipate the franchisee to incur during the agreement’s term. Occasionally, costs associated with implementing a change specified in or enforced through the operations manual are significant and may not be disclosed. In such circumstances, the enforceability of such a proposed change becomes questionable.
Reasonableness of the Content
The requirements in the operations manuals must be reasonable. Accordingly, you should ensure that these requirements consider the interests of all parties. If not, there is certainly room to argue that you have acted contrary to your statutory obligation of good faith as per the Code.
Key Takeaways
If you are contemplating changes to your operations manual and are uncertain about the next steps, you should begin by assessing whether that term is legally binding on the franchisee. This will depend on:
- The terms of the franchise agreement and whether there are clauses incorporating compliance with the operations manual as a key term of the franchise agreement; and
- If there failure is a result of your changing the operations manual, whether you acted reasonably in implementing the change, including providing the franchisee with reasonable notice of the change and time to implement it.
For more information about your franchise operations manual, 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 1300 544 755 or visit our membership page.
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