A New Code for Ethical Franchising in Britain
Following a long period of consultation and discussion at European level, the British Franchise Association (BFA) adopted the latest version of the European Code of Ethics for Franchising (ECEF) on Thursday 8 December 2016 at the BFA's AGM. The BFA is the voluntary self-regulatory body for the UK franchise sector.
The updated code was put forward by the European Franchise Federation (EFF) and should be adopted by all of its member franchise associations across Europe. It is the first set of amendments to the ECEF to be approved since it was last updated in 2003. Over the next few months, the BFA will agree an additional document on its interpretation in the UK, called a 'national extension'. This will replace the existing code of ethics and national extension currently in force for BFA member organisations.
A more comprehensive code
This new code of ethics is much longer in length and has expanded on previous commitments, requirements and responsibilities, and has introduced some new ones.
Some of the commitments require action from, and place responsibility on, both the franchisor and the franchisee, including:
- An unqualified commitment to resolve disputes in good faith. This includes a requirement for the parties to seek alternative forms of dispute resolution where direct communication has failed to resolve a disagreement.
- A commitment to safeguarding the interests of the franchise network as a whole in the internet policies of both parties.
- An extended requirement for the franchise agreement to offer an opportunity to amortise initial investments to include subsequent ones.
Others place more of a burden on franchisors in particular, such as:
- A specific commitment from the franchisor to developing its know-how, to investing financial and human resources in the long-term development of its concept, and to specifying its internet sales policy.
- A requirement that the franchise agreement sets out the franchisor's rights to the brand for at least the term being offered to each franchisee.
There are also a number of changes that franchisees will need to be aware of, notably:
- An extended commitment from the franchisee to clarifying its independence and responsibilities to consumers.
- A further commitment to acting loyally to other franchisees, as well as the network as a whole.
- Explicit responsibilities of the franchisee for its business plan and for truthful and transparent disclosures to franchisors in their recruitment.
There is also a change in the franchisee's right to sell or transfer their business as a going concern. This is now an unqualified right and should be incorporated in the franchise agreement.
The ECEF will only apply to UK franchise networks that are members of the BFA. Nevertheless, it often used by non-members to ensure that they are operating their networks in a desirable manner.
In general, the BFA's practices are already in line with the new Code. However, once the national extension is published it is likely that there will be some variations. If you are a BFA member and need guidance or advice on the changes, then let us know. You can get in touch with Sheilah Mackie or any member of our franchising team.