Members of the Birketts Franchising Team, Ed Savory (Legal Director), Rob Tiffen (Senior Associate) and Vicki Mitman (Associate) have recently attended a number of British Franchise Association (bfa) forums in London and the Midlands to discuss hot topics, the new European Code of Ethics for Franchising and mandatory arbitration clauses in franchise agreements.

Code of Ethics for Franchising

The bfa’s Code of Ethics has long been established as the starting point for promoting and assessing ethical standards in the industry. Recent proposed changes seek to bring the Code up to date with current industry trends and new requirements. The key changes, which include new commitments for both franchisor and franchisee, are summarised below:

  • commitment by the franchisor to maintain and develop its know-how, invest in the long-term development and continuity of the concept and specify its internet sales policy
  • franchisee commitments to act loyally to other franchisees individually as well as to the network as a whole, and to promote their responsibility for the consumer
  • an unqualified commitment by both parties to resolve disputes with good faith and goodwill and to seek mediation/arbitration where direct communication has failed
  • a commitment by both parties to safeguard the interests of the network as a whole in their internet policies
  • an explicit franchisee responsibility for their business plan and for truthful and transparent disclosures to franchisors in their recruitment
  • a requirement that the franchise agreement set out the franchisor’s rights to the brand for at least the term being offered to each franchisee
  • an extension of the requirement that the franchise agreement offers the opportunity to amortise initial investments to include subsequent investments
  • the unqualified right for a franchisee to sell or transfer their business as a going concern.

Mandatory Arbitration Scheme

The bfa is consulting with members on a mandatory arbitration scheme which is being introduced as a way of resolving disputes between franchisor and franchisee. Arbitration is a formal alternative dispute resolution process outside of the court system. An independent third party (the arbitrator) is provided with case details and evidence from both parties to the dispute and the arbitrator makes a decision (called an award) which is both binding on the parties and enforceable through the courts. All parties need to agree to arbitration, which can be done via inserting appropriate wording into the franchise agreement which all parties sign. This would not prevent franchisors and franchisees from using other methods of dispute resolution (such as negotiation and mediation) and will allow emergency relief to be sought from the courts if required, but it seeks to ensure the dispute is dealt with quickly and by someone who is knowledgeable about franchising. The arbitrators will be independently qualified but will also undergo training with the bfa so that they fully understand franchising. The bfa is considering a ‘track’ system roughly synonymous with the civil procedure rules which separates claims by value, so that disputes are resolved through an arbitration procedure that is appropriate to their value.

Other hot topics

Other hot topics discussed at the forums included:

  • franchise resales
  • Brexit and the impact on franchise businesses (in particular those which employ migrant workers) – so far business as usual!
  • managing franchisee under-performance – mechanisms for early detections and how to manage and motivate franchisees
  • responding to changes in buyer behavior (presentation by Nick Strong of Franchise Intelligence)
  • franchisee recruitment – what’s working, new initiatives and social media
  • franchisee support – ideas for training, IT and online support systems, and how frequently to meet face to face.

The bfa strives to set the standard for ethical franchising in the UK. Members of the bfa are able to attend forums and other events throughout the year in order to learn and share best practice. If you would like any further information about the bfa please visit the bfa website.