But the drama continues – terminating rogue franchisees may not be as simple as it seems.
It began with the news that 7-Eleven franchisees had been exploiting and grossly underpaying their employees. However the focus wasn’t just on the franchisees who had directly engaged in these actions, a spotlight was also cast on the 7-Eleven franchisor.
7-Eleven faced accusations of deliberately turning a blind eye to its franchisees' illegal activities and to some extent causing it by operating an unfair franchise model. Question for 7-Eleven was, what to do about it? Stand behind its franchisees and cop the heat, or pin the blame on them? Looks like a bit of each is the call, but franchisees are outraged that 7-Eleven has elected to terminate some of the franchises involved in the payroll breaches.
The 7-Eleven situation is very murky, but what can other franchisors do when their franchisees have been breaking the law?
The Franchising Code gives franchisors rights to terminate franchise agreements if their franchisees are acting fraudulently in operating their business. However, this won’t necessarily cover termination for unlawful or improper activity.
The good faith provisions in the Franchising Code and a clause in franchise agreements requiring franchisees to act in the best interests of the franchise business may also offer franchisors some protection against rogue franchisees, but that may not be enough either.
If you’re a franchisor, it's worth thinking about. Do you have express rights permitting you to terminate if a franchisee engages in unlawful activities, brings the brand into disrepute or damages the franchise business? If you don’t have that protection, then 7-Eleven type problems may leave you with rogue franchisees as well as a PR nightmare.