Service provision and franchise: towards a new franchise model

The last few years have shown an enormous variation in franchise formulas in the service sector; in the hotel industry, banking, temporary employment, childcare, elderly care and so on. Many of these franchise formulas are characterized by a permanent, often far-reaching, change in the services and thus in the franchise formula itself. However, many (regular) franchise agreements in the service sector are not designed for this. Clauses that attempt to ensure that franchisees must move along with the development of the franchise formula are often not sufficient for this: it is not uncommon for a specific mix of exclusivity of the area/customer base of the franchisee, customer ownership, transfer arrangements, including goodwill and exit arrangements, to change. strategies in relation to the (at the time) pretended revenue model such that a general interim revision of the entire franchise organization becomes a project that the franchisor and franchisees subsequently take on. A well-functioning consultation between the parties does not detract from this: the impact of continuous strategy changes on the legal context of the whole is simply too great; the usual existing franchise models often prove unable to withstand this.

Incidentally, the need or necessity for fundamental reorientation also often comes from the legislative corner. Structural changes in, for example, the Childcare Act, the Financial Transactions Act, or guidelines in healthcare simply regularly necessitate a completely different approach. Various supervisors subsequently remind of this in a manner that leaves little misunderstanding about new lines of conduct to be chosen and ditto changes to the franchise formulas.

In practice, this often translates into a new straitjacket that is much too directive in parts or describes too many detailed agreements between franchisor and franchisee in such a way that the market forces are disrupted. The result is a renewed franchise organization where major risks are taken with regard to the risk of a fictitious employment relationship, whereby competition law infringements are impermissibly inherent in the whole.

It is therefore worth considering working with an alternative, modular system for various service formulas. A basic franchise agreement is used for this, in which various parts are then anticipated on possible future changes of various natures. In this way, a new, open cooperative relationship is created, in which guarantees for the basic principles, the quality and the future of the franchise organization are naturally guaranteed. An equal and mature consultation between franchisor and franchisees is a basic condition for the success of this new form of cooperation offered by practice.

Several franchise organizations have now been set up or restructured in this alternative way, with great success. The core of this success lies in a new, future-proof pattern of expectations for both the franchisor and franchisees, and it avoids the tensions so common in practice that are associated with sticking to regular franchise agreements that do not take into account the (ir)regularly changing tide, so characteristic of many franchise formulas in the service sector. Incidentally, it certainly does not hurt that in the retail sector various useful elements from the developments in the various franchise formulas in the new style of services are further evaluated and adopted where indicated. However, this is currently only happening to a very limited extent.

mr  Th.R. Ludwig  – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice Would you like to respond? Mail to info@ludwigvandam.nl