Solicitor Fiona Boswell advises franchisors to draw-up documentation, and prepare for future problems, ‘just in case things don’t go as planned.’

Nothing in life is certain and, almost every day, people are faced with unusual circumstances. Life rarely travels in a straight line and it can be particularly troublesome for business owners. And when the unexpected happens within a franchise network, it is usually up to the franchisor to think quickly and decisively on their feet.

In this article I advise franchisors on steps they can take to pre-empt such issues. By adopting a few precautions, business owners can better manage any problems that arise. It will save you hassle, management time, cost and legal expenses in the long run. I use three examples to explain how franchisors can prepare for the unexpected.

What to do when a franchisee dies

Always prepare for this eventuality from the outset. Regarding franchise agreements, franchisees should be advised to have a ‘will’ which clarifies what happens to the business if they die. Franchisors should always keep a record of a ‘will’, and any updates that occur, as well as know where the ‘will’ is physically stored.

They should also be aware of who the franchisee’s legal representatives are, and if anyone holds Power of Attorney. By knowing this information, it becomes much easier for the franchisor to manage this difficult situation for all. Franchise agreements typically include provisions that clarify what happens if a franchisee dies or becomes incapacitated. 

These provisions will give a franchisor the right to decide whether the named beneficiary of the business is suitable to become the new franchisee.  And always keep such documents close to hand.

To ensure the smooth running of the business, while legal matters are dealt with, a carefully drafted franchise agreement should include a provision that allows the franchisor to operate the business in the interim. This should include access to bank accounts, enabling the franchisor to pay staff and suppliers. Beneficiaries may require advice on their obligations.

Beneficiaries may not wish to take control of the business anyway. Therefore, a provision needs to be included that allows the beneficiary to proceed with its sale. The task of selling the business may also be given to the franchisor or a personal representative of the beneficiary. There may be provision for the business to be transferred to another franchisee or even a new purchaser.

Whistleblowing by franchisee staff members

Whistleblowing is one method by which franchisors receive insight about how a business partner treats their staff. To ensure that this information is available to the franchisor, and therefore stave off potential reputational damage to the brand, it is vital to have the correct policies and procedures in place. A franchisor must be able to discover if any wrongdoing is taking place.

Thus, the following details needs to be agreed:

  • Policies on how, and to whom, an employee can raise a complaint;
  • Clarification that whistle-blowers are treated confidentially. They must be allowed to complain anonymously through safe, private channels;
  • Encouraging use of these systems without recrimination;
  • Actively investigating issues raised, and then seeking to resolve them;
  • Implementing training for all franchisees and their staff on issues of concern, such as sexual harassment.

A new law comes into force later this year that requires franchisors to have more vigilance over the actions of franchisees towards their staff. These laws also provide information about the necessary sanctions to be applied by regulatory bodies.

Compliance of these new laws is vital, meaning franchisors will now have to take reasonable steps to prevent wrongdoing, such as sexual harassment. And these steps involve more than simply including a policy in a handbook.

Source: Elite Franchise Magazine

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Krishma Vaghela

Founder of Franchise Futures. Franchise and Business Development Consultant, Mentor and 5x Awards Finalist.