Franchise laws

Multi-tier franchise models may fall under the Trading Schemes Act 1996 and Trading Schemes Regulations 2017. This means you must give certain information when marketing the franchise, with a 14-day cooling off period after the franchise agreement has been signed. These rules don’t apply to direct franchisor/franchisee relationships – only if franchisees create sub-franchises or recruit third parties to sell goods or services in return for payment. If all members of the network are VAT-registered, the rules don’t apply – so make sure franchisees don’t deregister for VAT and that new members register before joining if this route is chosen.

The British Franchise Association (BFA) is a trade body which seeks to promote ethical franchising through its Code of Ethics for Franchising. Membership isn’t compulsory, but if you want to promote your franchise at BFA-approved exhibitions, your franchise agreement must be vetted and approved. If you become a member of the BFA, your franchise agreement must meet their standards and requirements of the BFA.

If your franchise establishes an agency relationship with franchisees, the Commercial Agents (Council Directive) Regulations 1993 could apply. These rules include certain mandatory provisions in relevant agreements and allow franchisees to potentially claim compensation on termination or expiry. However, if your franchisees operate independently (as is usually the case), then the regulations won’t apply.

If you and your franchisees share personal data, or you process personal data through your IT systems, you must follow data protection laws. You should include the necessary clauses in your franchise agreement. If personal data is transferred outside the UK, you’ll need to make sure you’re complying with UK GDPR rules.

Your franchise agreement must comply with relevant competition laws. In particular, you can’t:

• Restrict franchisees from setting their own prices (but you can set maximum or recommended prices).
• Restrict passive sales, like website sales.

Additionally, non-compete clauses, exclusive purchasing obligations and post-termination restrictions must be reviewed for compliance.

Register your Trade Marks (and any patents or designs if applicable) with the Intellectual Property Office. Your franchise agreement will licence your franchisees to use your intellectual property whether registered or not, without needing a separate formal licence. You will need to include clauses in the franchise agreement that reserve infringement action rights exclusively for you as the franchisor.

The Financial Conduct Authority regulates the financial services industry in the UK. If your franchise activities involve regulated activities, such as consumer credit, insurance and investments, you must ensure you obtain relevant authorisations. Seek specialist advice before entering the UK market to check your business operations and your franchisees’ obligations comply.

Franchisees must comply with relevant employment laws. As a franchisor, you should be aware of the Transfer of Undertakings (Protection of Employment) Regulations 2006. These could apply if a franchisee’s business transfers to you or an affiliated company on termination or expiry of the franchise agreement.

If you’re granting franchises in Scotland, there are some minor differences in legislation which mean you need to update the franchise agreement. Property-based franchisees will need adapted franchise agreements and associated property documentation.