What are a franchisor’s obligations to its franchise network?

The obligations of a franchisor are set out in the franchise agreement. Usually those obligations are set out in two separate clauses. The initial obligations are those that are required to allow a franchisee to start operating the franchise business and include the provision of initial training, initial stock and advice on how to launch the business. There are also the continuing obligations which apply during the term of the franchise which are the obligations to provide assistance and guidance to franchisees, develop the franchise and provide continuing training. Ideally the obligations on the franchisor should not be vague so that a franchisee cannot actually enforce them against a franchisor. In other words when a franchisor is required to provide “advice” the agreement should set out what that means – is it two days of face to face meetings or is it a five minute phone call?

In addition to these contractual obligations recent cases are suggesting that franchisors may owe franchisees a duty of care in the way that they provide advice and guidance to their franchisees so that if they do so negligently then a franchisee will have a right of action against the franchisor. There is also the possibility that franchisors have to comply with a duty of good faith to franchisees which means that franchisors have to be honest, communicate fully with franchisees and answer all franchisee’s questions and operate the franchise in a way that is not prejudicial to franchisees. The exact extent of this obligation is currently unclear.