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EUROPEAN FRANCHISE FEDERATION (International not-for-profit association established under Belgian law) N° entreprise 478 399 266
179, Ave. Louise, B – 1050 Brussels, Belgium tel. 32 (0) 2 520 16 07 – fax 32 (0) 2 520 17 35
[email protected] - www.eff-franchise.com
European Code of Ethics for Franchising
last amended on December 5th, 2003
2 Each National Association or Federation member of the EFF has participated in its writing and will ensure its promotions, interpretation and adaptation in its own country. Proposed adaptations by Member Associations may come as complements to the basic Code, without altering it, and must be approved by the EFF’s governing bodies before being implemented. The aim of this Code of Ethics is to be a practical ensemble of essential provisions of fair behaviour for all Franchise practitioners in Europe, and in particular the parties to a franchise contract. 1.
DEFINITION OF FRANCHISING
Franchising is a system of marketing goods and/or services and/or technology, which is based upon a close and ongoing collaboration between legally and financially separate and independent undertakings (app. 1), the Franchisor and its individual Franchisees, whereby the Franchisor grants its individual Franchisee the right, and imposes the obligation, to conduct a business in accordance with the Franchisor's concept (app. 2). The right entitles and compels the individual Franchisee, in exchange for a direct or indirect financial consideration, to use the Franchisor's trade name, and/or trade mark and /or service mark, know-how (app. 3), business and technical methods, procedural system, and other industrial and /or intellectual property rights, supported by continuing provision of commercial and technical assistance, within the framework and for the term of a written franchise agreement, concluded between parties for this purpose. "Know-how" means a body of non-patented practical information, resulting from experience and testing by the Franchisor, which is secret, substantial and identified; -"secret" means that the know-how, as a body or in the precise configuration and assembly of its components, is not generally known or easily accessible; it is not limited in the narrow sense that each individual component of the know-how should be totally unknown or unobtainable outside the Franchisor's business ; -"substantial" means that the know-how includes information which is of importance for the sale of goods or the provision of services to end users, and in particular for the presentation of goods for sale, the processing of goods in connection with the provision of services, methods of dealing with customers, and administration and financial management; the know-how must be useful for the Franchisee by being capable, at the date of conclusion of the agreement, of improving the competitive position of the Franchisee, in particular by improving the Franchisee's performance or helping it to enter a new market . -"identified" means that the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality ; the description of the know-how can either be set out in the franchise agreement or in a separate document or recorded in any other appropriate form.”
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GUIDING PRINCIPLES
2.1
The Franchisor is the initiator of a franchise network, composed of itself and its individual Franchisees, of which the Franchisor is the long-term guardian (app. 4).
2.2
The obligations of the Franchisor: The Franchisor shall
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2.3
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have operated a business concept with success, for a reasonable time and in at least one pilot unit before starting its franchise network (app. 5),
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be the owner, or have legal rights to the use, of its network's trade name, trade mark or other distinguishing identification (app. 6 & 7),
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provide the Individual Franchisee with initial training and continuing commercial and /or technical assistance during the entire life of the agreement.
The obligations of the Individual Franchisee: The Individual Franchisee shall
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devote its best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network (app. 8),
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supply the Franchisor with verifiable operating data to facilitate the determination of performance and the financial statements necessary for effective management guidance, and allow the Franchisor, and /or its agents, to have access to the individual Franchisee's premises and records at the Franchisor's request and at reasonable times,
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not disclose to third parties the know-how provided by the Franchisor, neither during nor after termination of the agreement (app. 9).
The ongoing obligations of both parties Parties shall exercise fairness in their dealings with each other. The Franchisor shall give written notice to its Individual Franchisees of any contractual breach and, where appropriate, grant reasonable time to remedy default; Parties should resolve complaints, grievances and disputes with good faith and goodwill through fair and reasonable direct communication and negotiation.
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RECRUITMENT, ADVERTISING AND DISCLOSURE 3.1
Advertising for the recruitment of Individual Franchisees shall be free- of ambiguity and misleading statements;
3.2
Any recruitment, advertising and publicity material, containing direct or indirect references to future possible results, figures or earnings to be expected by Individual Franchisees, shall be objective and shall not be misleading.
3.3
In order to allow prospective Individual Franchisees to enter into any binding document with full knowledge, they shall be given a copy of the present Code of Ethics as well as full and accurate written disclosure of all information material to the franchise relationship, within a reasonable time prior to the execution of these binding documents (app. 10)
3.4
If a Franchisor imposes a Pre-contract on a candidate Individual Franchisee, the following principles should be respected :
4 - prior to the signing of any pre-contract, the candidate Individual Franchisee should be given written information on its purpose and on any consideration he may be required to pay to the Franchisor to cover the latter's actual expenses, incurred during and with respect to the pre-contract phase ; if the agreement is executed, the said consideration should be reimbursed by the Franchisor or set off against a possible entry fee to be paid by the Individual Franchisee; -the Pre-contract shall define its term and include a termination clause; -the Franchisor can impose non-competition and/or secrecy clauses to protect its know-how and identity. 4.
SELECTION OF INDIVIDUAL FRANCHISEES
A Franchisor should select and accept as Individual Franchisees only those who, upon reasonable investigation, appear to possess the basic skills, education, personal qualities and financial resources sufficient to carry on the franchised business (app. 11).
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THE FRANCHISE AGREEMENT 5.1
The Franchise agreement shall comply with the National law, European community law and this Code of Ethics and any national Extensions thereto.
5.2
The agreement shall reflect the interests of the members of the franchised network in protecting the Franchisor's industrial and intellectual property rights and in maintaining the common identity and reputation of the franchised network (app. 12). All agreements and all contractual arrangements in connection with the franchise relationship shall be written in or translated by a sworn translator into the official language of the country the Individual Franchisee is established in, and signed agreements shall be given immediately to the Individual Franchisee.
5.3
The Franchise agreement shall set forth without ambiguity, the respective obligations and responsibilities of the parties and all other material terms of the relationship.
5.4
The essential minimum terms of the agreement shall be the following - the rights granted to the Franchisor - the rights granted to the Individual Franchisee - the goods and/or services to be provided to the Individual Franchisee - the obligations of the Franchisor (app. 13, 16, 17) - the obligations of the Individual Franchisee - the terms of payment by the Individual Franchisee - the duration of the agreement which should be long enough to allow Individual Franchisees to amortize their initial investments specific to the franchise - the basis for any renewal of the agreement (app. 14) - the terms upon which the Individual Franchisee may sell or transfer the franchised business and the Franchisor's possible pre-emption rights in this respect - provisions relevant to the use by the Individual Franchisee of the Franchisor's distinctive signs, trade name, trademark, service mark, store sign, logo or other distinguishing identification
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the Franchisor's right to adapt the franchise system to new or changed methods provisions for termination of the agreement provisions for surrendering promptly upon termination of the franchise agreement any tangible and intangible property belonging to the Franchisor or other owner thereof (app. 15).
THE CODE OF ETHICS AND THE MASTER-FRANCHISE SYSTEM
This Code of Ethics shall apply to the relationship between the Franchisor and its Individual Franchisees and equally between the Master Franchisee and its Individual Franchisees. It shall not apply to the relationship between the Franchisor and its Master-Franchisees. ************* The French Franchise Federation's Extensions & Interpretations last update 14 June 2011
(1) The franchisee is responsible for the human and financial means that he engages in his franchise business and is responsible, with regard to third parties, of the acts accomplished in the framework of his operation of the franchise. He has the obligation to collaborate loyally in ensuring the success of the network which he has joined as an informed and fully independent entrepreneur, which excludes any relation of subordination to the franchisor. (2) A franchise concept is the made up of the unique conjunction of three elements: i) the property of or the rights to use the distinctive signs that rally the customer, including the brand name, trademarks, commercial name, signs, symbols, logos, etc. ii)) the use of commercial experience, expertise and know-how, iii) a range of products, services and/or technologies, patented/registered or not, which the franchisor has conceived, adapted, approved or acquired. (3) Know-how: The franchisor guarantees the right to use the know-how transferred to the franchisee, which it is the franchisor's responsibility to maintain and develop. The franchisor transmits the know-how to the franchisee through adequate means of information and training, and controls that it is respectfully applied. The Franchisor encourages the feedback of information from the franchisees in order to improve the know-how. In the pre-contractual, contractual and post-contractual phases of the franchisor-franchisee relationship, the franchisor will prevent any wrongful usage of or, in particular, the transmission of the knowhow to competing networks so as not to cause prejudice to the interests of the network. (4) The franchise network is composed of the franchisor and all of the franchisees. The franchise network, in its organisation and development, contributes to enhancing the production and/or distribution of goods and/or services and/or contributes to promoting economical and technical progress whilst at the same time ensuring that the customer benefits equitably from a share of the profits. The franchisor must favour a permanent and structured dialogue between his organisation and each of the franchisees by setting up dialogue structures. The franchisee must engage in the life of the network and
6 contribute to its general interests. The franchisor's brand, which is the symbol of the network's identity and reputation, constitutes the guarantee of the quality of service that is provided to the customer. This guarantee of quality is assured by the transmission of knowhow, the control of its proper application as well as by the offer of a homogenous range of products, services and/or technologies. The franchisor ensures that the franchisees inform the customer, by the appropriate visible signs, of their quality as legally independent entrepreneurs. (5) It is the duty of the franchisor to invest the necessary means, financial and human, to promote his brand and to engage in the necessary research and innovation to ensure the long-term development and continuity of his concept. (6) The Intellectual Property Rights on the brands, signs, etc. must be protected for a term at least as long as the term of the franchise contract. (7) The image of the brand The franchisor guarantees the franchisee the full rights to use the brands, signs, etc. that have been put at his disposal. The franchisor must also guarantee the validity of his own rights on the brand(s) that have been conferred, under whatever status, to the franchisee. The franchisor maintains and develops the image of the brand. The franchisor must control that the franchisee is using the brand name and all other contractual signs as stipulated in the contract. At the end of the contract, the franchisor will control that the ex-franchisee is no longer using the brands, signs, etc. of the system. If the contract contains a clause of territorial exclusivity for the use of the brand, the franchisor must specify its conditions, including object and scope of exclusivity. The franchisor must ensure, by all means, that the collection of products/services and/or technologies on offer to the endconsumer are in proper conformity with the image of the brand. This might be effected by the means of a clause of exclusive supply, in particular, if the products carry the name/brand of the franchisor. (8) The franchisee must, whatever the circumstances, act loyally with regard to each franchisee of the network as well as with regard to the network itself. The franchisee is responsible with the franchisor for the strength of the network. (9) In this respect, the contract may foresee a non-compete clause, in-term or post-term, whose object, term and scope will be defined in a manner that takes into account the interests of the network. (I0) The future franchisee, who must be provided with the information stipulated in articles L. 330-3 and R.330-1 of the French Code of Commerce, is responsible for carefully analysing this information in order to integrate its elements into his entrepreneurial project for which he is entirely responsible. (11) The future franchisee must be loyal in the information that he provides to the franchisor about his experience, his financial capacities, his training/background, etc. in view of his selection. (12) Contractual relations The franchisor and franchisees each know that they are collaborating in a system in which their interests are linked, for the short and long term. The flexibility of the franchise system and the sense of responsibility of each party have contributed to the success of franchising. The relations between the
7 parties must therefore allow for the necessary evolutions needed to better the functioning of the network as well as the satisfaction of the customer. The franchisor establishes the contract which fully details the rights, obligations, and responsibilities of the parties. The contract must reflect the strategy of the franchise network. It must indicate the means necessary to the achievement of the concept. The contract will not impose on the parties restrictions which are not necessary to the attainment of its objectives. The balance of the contract is to be appreciated globally in light of the general interest of the franchise network. The framework of the contract will lay the grounds for a permanent dialogue and favour conciliatory solutions. (13) As the party responsible for the identity and the reputation of the network, the franchisor strives, proportionally to his objectives and means: 1) to define norms of quality and ensure their respect by the franchisees with regard to the customer, 2) to ensure that the franchisee is always aware of his responsibilities as a fully independent entrepreneur with regard to the customer, as well as keep him informed of the recourse available to him through the French Franchise Federation's Franchise-Consumer Mediation Committee, 3) in the case that the franchise activity requires advance payments, partial or total, from the endcustomer, the franchisor must counsel the franchisee on his need for a guarantee system for the customer's payment. This guarantee scheme may come in different forms: the franchisee's personal solvency, insurance, a bank guarantee or any other means. (14) The franchisor informs the franchisee, and reciprocally, with sufficient notice of his intention to not renew the current contract as it reaches the end of its term or to not sign a new contract. (15) The franchise contract should foresee the conditions for recovering or taking possession of certain goods or furnishings specific to the franchise when the contract ends. In doing this, the franchisor is not seeking to penalise the ex-franchisee but to protect the identity and reputation of the franchise network. (16) The Franchisor, for the sake of loyalty, will not seek to develop his own sales via the internet if this causes effective prejudice to the franchisees. 1. The franchisor will inform any franchisee candidate about his internet communication and/or sales policy. 2. Both franchisor and franchisees will seek to safeguard the higher interests of the network in the development of their online commercial and sales policy. (17) The franchisor may not put into place unjustified practices which aim at depriving or constraining the franchisee's freedom to leave the network at the end of the franchise contract.
