The Ethics of Franchising 

As you pursue the prospectus and begin to think more seriously about involving yourself with a given franchise, it becomes increasingly important to ensure that the franchisor is following the ethical guidelines laid out by the European Code of Ethics for Franchising. If you don’t feel capable of assessing this on your own, find a franchise attorney and have him or her review the documents. You will have to find one before you sign the final documents anyway! 

Here is a brief outline of the European Code of Ethics for Franchising. If you suspect any of these are not being followed, this is definitely not a franchise you want to become involved with! 

Franchisor Obligations 

Under the Code of Ethics, franchisors must: 

·  have operated the franchise successfully for a reasonable amount of time 

·  have operated at least one pilot franchise before offering the franchise for sale 

·  own or have legal rights to the company’s identifying marks 

·  provide ongoing training and support beyond the initial purchase period 

·  deal fairly and honestly with franchisees 

·  provide written notification of any contractual violation on the franchisee’s part 

·  make sure that all recruitment material (brochures, the prospectus, etc.) are factual and free of error 

·  give objective financial information, especially relating to potential earnings 

·  provide the franchisee with a copy of the European Code of Ethics for Franchising, along with a full disclosure of all company information 

·  ensure that pre-contracts, if they choose to use them, are clear and unambiguous, and the franchisee understands their purpose 

·  ensure that the franchisee has the necessary skills and abilities to successfully manage the franchise 

Note that the franchisor is expected to provide you with a copy of the Code of Ethics. If he or she does not, you should look very carefully at the proposed agreement. If you mention the Code and receive a quick apology and an immediate copy, it’s possible the franchisor made an honest mistake; if you receive blustering or excuses, run in the other direction. 

Franchisee Obligations 

The Code of Ethics is primarily designed to protect the franchisee; however, any franchise purchase is a legal and binding contract, and as such, the franchisee also has responsibilities to the franchisor. Under the Code of Ethics, the franchisee must: 

·  devote his or her best efforts to the company’s success 

·  maintain the company’s logo and policies, as well as its reputation 

·  provide the franchisor with financial date 

·  be willing to open both premises and files to the franchisor at any time 

·  not disclose training or operating procedures to a third party, including after the franchise agreement expires 

·  deal fairly and honestly with the franchisor 

There is another section of the Code dedicated to franchise agreements, but we’ll get to that in due time. 

As you can see, the vast majority of the Code of Ethics is common sense, but it’s important to know both your rights and your responsibilities when entering into any sort of contract with another party. In this case, it’s doubly important that you understand the franchisor’s duties and obligations, because he or she will probably have more experience in franchising than you, and may appear to have all the answers. That’s fine -- as long as you have them, too! 

As for your own responsibilities, it’s equally important to enter into the agreement with open eyes. You must understand that you are signing a binding contract and act accordingly!