Further to our previous article 'What does Brexit mean for UK franchising? - part one', franchise businesses should carefully consider the material issues initiated by Brexit, as we see them today.

Compliance with regulation

The UK franchise system currently follows the European Franchise Federation and its code of ethics, but is based on a system of self-regulation, which is unlikely to be affected by Brexit. Although there is no body of UK 'franchise law' there are a number of laws which have their origin in European legislation, which currently UK franchise businesses take advantage of. For example, EU competition law, which the UK will need to revisit to determine exclusivity and price maintenance issues. This could be a positive change for international franchising in the UK.

Given the timeframes and trepidation culture surrounding data protection and security, we highlight that Brexit is unlikely to impact the implementation of the highly publicised General Data Protection Regulation ('GDPR'). This is important as the number of B2C franchise businesses operating in the UK, which amass customer data, is ever increasing. In any event, UK entities dealing with EU citizens' data will need to comply and commentators suggest the UK is likely to adopt a similar framework. As such, best practice is to continue to gear up for compliance.

People - employees and immigration

Franchise networks are likely to be substantially impacted by changes in immigration laws caused by Brexit. However, at the moment the Brexit vote's impact on immigration is unclear. For example, mobility restrictions, labor shortages and/or loss of talent are possible. In addition, the employment laws most likely to change are those relating to agency workers, collective consultation and working time rights. Fortunately, franchisors have two years to consider their employment strategy, but in the short term there are a number of areas of employment law which are outside of the scope of European control which are likely to remain unchanged. For example, minimum wage regulation.

So, what now...

The recent approach to EU law has been that of harmonization but a Brexit vote potentially leads the UK in the opposite direction and therefore, towards uncertainty. In addition, given that franchising growth in the UK over the last ten years has, notably, been in B2C systems the impact to consumer confidence will play a pivotal role on the impact of Brexit on the UK franchising industry.

The good news is that during the 2007/2008 financial downturn franchising resisted the negative economic trends and continued to develop, while the GDP and employment fell. Regardless of this, franchise businesses should be considering the points above and how these challenges impact on their goals of continued and sustainable growth.

So, what should franchise businesses be doing now?

  • monitor progress of Brexit - as many of the impacts are unknown, franchise businesses need to keep abreast of the evolving Brexit landscape
  • start financial planning, given that the impact of Brexit is currently so uncertain your business will need to plan for each eventuality and the costs associated, in order to adapt
  • review your supply chain, particularly if it includes sourcing or providing services or products to EU member states, and negotiate price being mindful of the value of Sterling and currency fluctuation
  • review your franchise agreement - are there are triggers or issues which need to be addressed in the short term and for which a strategy should be deployed for the medium/long term?
  • undertake an IP audit to evaluate your enforcement rights and protection
  • review NDA/confidentiality agreements and provisions to ensure sufficient protection for your model
  • continue working towards data privacy and security best practice
  • complete a workforce audit - for example, embark on an assessment of reliance on foreign workers, make relevant applications and communicate with concerned employees