The Code of Ethical Conduct in Franchising

By subscribing to the European Franchise Federation (“EFF”) the British Franchise Association (“BFA”), accepted the European Code of Ethics and undertook not to amend or delete it in any way. However, the EFF recognised that national requirements may require other clauses or provisions to be included in member states, and members are therefore permitted to include such provisions in a separate document, provided they do not conflict with or detract from the European Code. The BFA produced the Code of Ethical Conduct in Franchising: Extension and Interpretation (“Code”), which comprises the European Code, and are therefore required to impose on its own members the obligation to respect and apply the provisions of the Code. The European Code, and by its adoption, the Code, is intended to be a practical ensemble of essential provisions of fair behaviour for franchise practitioners in Europe, but not to replace related national or EC law.

Key Provisions within the Code

A requirement for the Franchisor:

• to have operated a business concept with success, for a reasonable time and in at least one pilot unit before starting its franchise network;
• to be the owner, or have legal rights to the use of its trade name and marks;
• to provide Franchisees with initial training and continuing commercial and/or technical assistance during the entire life of the agreement;
• to when recruiting Franchisees, to ensure:
  • advertising is free of ambiguity and misleading statements;
  • any publicly available recruitment, advertising and publicity material, containing direct or indirect references to future possible results, figures or earnings to be expected by individual franchisees, is objective;
  • to provide the Franchise with a copy of the Code and full and accurate information material to the franchise relationship, within a reasonable time prior to requiring the Franchisee to sign any binding document;
  • to select and accept only those individual Franchisees who, upon reasonable investigation, appear to possess the basic skills, education and personal qualities and financial resources sufficient to carry on the franchise.
• A requirement for the Franchisee:
  • to devote its best endeavours to the growth of the franchise business and maintenance of a common identity and reputation;
  • to supply the Franchisor with verifiable operating data to facilitate the determination of performance;
  • not to disclose to third parties the know-how provided by the Franchisor, during or after termination of the agreement.
• A requirement for both parties:
  • to exercise fairness in their dealings with each other;
  • to resolve complaints and disputes with good faith and goodwill through fair and reasonable direct communications and negotiation.

Enforceability

The Code does not have any statutory force and like all codes is voluntary. It is imposed on members of the BFA and regulated internally, the ultimate sanction being loss of membership by a defaulting member. However, businesses that abide by the Code’s terms will be able to show that they have acted reasonably in accordance with industry wide standards, which will put them in a better position to defend claims of default or bad practice. Any Franchisor can choose to adopt the principles of the Code, although without being a member of the BFA, the Franchisor would be policing its own implementation of the principles. Fair dealings between Franchisor and Franchisee are more likely to lead to a long term successful relationship, and the Code identifies what the franchise industry recognises as the minimum standards required to achieve fair dealings.