Select Your Franchise - Information on UK Franchises and Directory of Franchise Opportunities

Avoiding hassle when changing existing contract terms

October 15th, 2014 by Fiona Boswell in Franchise Legal
 
Fiona Boswell - Senior Associate Solicitor, Freeth Cartwright LLP

Fiona Boswell – Senior Associate Solicitor, Freeth Cartwright LLP

Q: I am an established franchisor with a maturing franchise network. I want to change my franchise model and ensure that all of my network adopt the same terms. Can I do this?

A:  Typical lawyer answer – It depends.

My answer: Yes and here’s how.

  1. Ensure that the changes that you propose are more favourable to the network than the terms they currently have. Eg reduced fees charged on sale/transfer of the business, reduced franchise fees, less onerous franchise obligations etc.
  2. Clarify that the revised terms will apply to all incoming franchisees and that it benefits the network as a whole for all franchises to be on the same terms.
  3. Ask your established franchisees to sign up to the new terms – stress the benefits to them
    personally and how much more attractive it will be to a third party purchaser when they decide to exit. Otherwise a resale is potentially less attractive than acquiring a new franchise.
  4. Note – you cannot force your established network to agree to the new terms but if you make it commercially attractive to do so they are not disadvantaged by the change and have no real grounds for refusal.

Image1Word to the Wise

Provided  the  proposed  changes  are  not  so  severe  as  to  amount  to  you  effectively preventing the franchisees from making a profit from operating the business, altering your franchise contract should not land you in hot water and is in fact a franchisors right in order to ensure its network operates in a uniform way.

Fiona Boswell
Fiona.boswell@freeths.co.uk
Tel 0845 0703812

Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.

Share
Comments Off on Avoiding hassle when changing existing contract terms  |  Read More 

 

What does “best endeavours” mean?

September 15th, 2014 by Sarah Beardmore in Franchise Legal
 

FreeGreatPicture.com-50250-business-figures-and-documents-and-paperAny franchise agreement will include obligations on either the franchisor or franchisee or both. These obligations may be:

(a) absolute (i.e. the franchisor and/or the franchisee will do something); or
(b) qualified (i.e. the franchisor and/or the franchisee will try to do something).

It is easy to assess whether a party has complied with an absolute obligation.  They either have or they haven’t and if they haven’t the innocent party will have the right to bring a claim for breach of contract (the main remedy for which is an award of damages).

Assessing whether a party has complied with a qualified obligation can be more difficult as it largely depends on the way in which the obligation is worded and the circumstances of the individual contract.  Certain legal phrases, known as “endeavours clauses” are used to indicate which end of the spectrum the obligation sits and implies into the contract how far the party on whom the obligation is placed will have to go to show compliance with the obligation.  The endeavours clauses most commonly used in franchise agreements are “best endeavours” which is the most onerous of all the endeavours clauses and “reasonable endeavours” which is the least of all the endeavours clauses.   So what do these phrases actually mean?

“Best endeavours”

–    e.g. the franchisee will use its best endeavours to promote the business.
–    is viewed from the perspective of the person who benefits from the obligation.
–    to satisfy an obligation to use best endeavours the party on whom the obligation is placed should take all those steps in their power which are capable of producing the desired result and are steps which a prudent, determined and reasonable person, acting in its own interests and desiring to achieve the result would take.
–    an  obligation to  use  best  endeavours  does  not  require  the  party  on  whom  the obligation is placed to take actions which would lead to its financial ruin, undermine its commercial standing or goodwill, or have no likelihood of being successful.

“Reasonable endeavours”

–    e.g. the franchisor will use its reasonable endeavours to advertise the franchise.
–    is viewed from the perspective of the person who has to comply with the obligation.
–    to  satisfy  an  obligation  to  use  reasonable  endeavours  the  party  on  whom  the obligation is placed should adopt and pursue a reasonable course of action (taking only one course of action may be reasonable) in order to achieve the result, bearing in mind its own commercial interests and the likelihood of success.

Action Points

Whilst most franchise agreements are relatively non-negotiable as a franchisee you might seek to negotiate with the franchisor to reduce onerous “best endeavours” obligations to less severe “reasonable endeavours” obligations.

Alternatively, you may wish to ask for clarification from the franchisor as to what steps you would and would not be expected to take to comply with such an obligation. As the franchise agreement will undoubtedly contain an “entire agreement” provision the franchisor’s response should be annexed to the execution copy of the franchise agreement (i.e. the document that is signed by the parties).

This article does not constitute legal advice.  This article is based on English law, is not intended to be an exhaustive review of the law, and specific advice should anyway be taken in particular circumstances.

The author, Sarah Beardmore, is a member of Freeths LLP.

Share
Comments Off on What does “best endeavours” mean?  |  Read More 

 

Can a franchisor be liable if its franchisee unlawfully fires an employee?

August 8th, 2014 by Fiona Boswell in Franchise Legal
 
Fiona Boswell - Senior Associate Solicitor, Freeth Cartwright LLP

Fiona Boswell – Senior Associate at Freeths

It has long been established in English law that a franchisor is not liable to third parties for the acts or omissions of its franchisees. Ultimately whilst the relationship between a franchisor and franchisee is fiduciary – the franchisor has no direct relationship with the franchisee’s staff. Instead the employer will be the franchisee.

This  principle which is  fundamental to the nature  of  a franchise  has been  broadly speaking accepted throughout the world and reflected in the laws of not only England but other jurisdictions. It is also enshrined in the franchise contract which clarifies the responsibilities of the franchisor and franchisee.

A recent US case has however created uproar in finding McDonalds jointly responsible with its franchisees for employment law infringements including the firing, suspension and reduction of hours of franchisee employees that belonged to trade unions. Considering the size of McDonalds franchise network the impact of this decision is huge. Disgruntled franchisee staff now have a defendant with much deeper pockets to target, and McDonalds has overnight become an employer of thousands. McDonalds is challenging this decision.

If this decision stands the impact for retail franchisors (in the US) is considerable. If franchisors can be liable to franchisee staff then arguably can they not also be liable to other third parties – franchisee customers? Franchisee contractors – the list goes on.

UK businesses that franchise in the US should be mindful of this decision. UK franchisors that operate franchises from the US should also take heed in case this decision impacts on their businesses – (which will depend on what law applies to your franchise contract).

Whilst there are no signs that English law will follow this principle at present it would still be prudent for franchisors in England to minimise their risk by ensuring that their franchisees implement employment policies and practices in line with applicable English employment laws. Employment actions are time consuming and attract negative publicity for the brand, plus with the growing trend in English courts for implying responsibility beyond that contractually prescribed between parties (as  shown  by the  recent  slew of  good faith  cases)  Franchisors  in  England  should  note  the unfortunate position of McDonalds and review the practices of their franchisees accordingly.

Fiona Boswell is a Senior Associate at Freeths and Head of Freeths Franchise. You can contact Fiona on 0845 070 3812 or e-mail fiona.boswell@freeths.co.uk

Whilst every effort has been made to ensure the accuracy of this bulletin, it does not provide complete coverage of the subjects referred to, and it is not a substitute for professional legal advice and should not be relied upon as such.

Share
Comments Off on Can a franchisor be liable if its franchisee unlawfully fires an employee?  |  Read More 

 

« Older Entries