With a new year comes a new perspective typically and to help Franchisors to minimise disruption and get their house in order for a smooth running and successful 2025 we set out below our reflections on 2024 to help your 2025 be better.
Be next step ready
The recent 2024 BFA survey [insert link] has highlighted how franchise networks are maturing meaning that it will be vital for brands to have robust resale processes. Certain sectors in franchising will also be facing increased cost pressures and franchisors must be wary of taking steps that can give their networks an easy out of their contractual obligations Franchisors must manage change to systems, processes and contracts carefully and ensure their policies and documentation are in their operations manual and that the manual is current, implemented and up to date. Are your manuals aligned to your agreements? Do you have a resale and/or renewal process that is applied in a fair and consistent manner? How will you manage exits. What practical measures do you have in place to deal with franchisee death or incapacity?
Take proactive steps to mitigate litigation risk by proactively managing contracts and relationships – Helen Lyne – Dispute resolution partner
Economic pressures drive competition and with that disputes are on the rise. Litigation concerning franchise termination, restrictive covenants and intellectual property misuse is on the up and with pressure on recovery action, there is heightened scrutiny of agreements and increased litigation in areas of contract interpretation, misrepresentation and disagreements over operational standards. This is likely to continue into 2025 and franchisors should be reviewing their agreements regularly to get ahead of this and to mitigate against the prospect of disputes. Proactive contract management, regulatory compliance and relationship management are key to this.
Avoid fines and adverse publicity for non- compliant digital ads and online marketing – Melissa Haskell, Regulatory Partner
The Consumer Rights Act 2015 and the Trading Standards will continue to play a key role in protecting consumers in the UK. In 2025, we may see further tightening of consumer protection laws, particularly in the areas of online advertising, data misuse, and transparency around pricing. The UK Digital Markets Unit, having been tasked with regulating large digital platforms, may introduce new guidelines that affect how franchises engage with online platforms for marketing and sales. In particular, this may impact advertising, online reviews, and affiliate marketing practices.
Franchise brands should ensure that their marketing, advertising, and pricing strategies comply with UK consumer protection standards, including rules around false advertising, misleading promotions, and contracts. This also extends to how franchisees advertise their products or services.
Franchise brands that utilise digital marketing (including social media, search engine marketing, and third-party platforms) should ensure they comply with any new regulations governing digital consumer protection. This includes ensuring that online promotions, customer reviews, and third-party listings are transparent and non-deceptive.
Review pricing strategies to avoid the scrutiny of competition authorities
The Competition and Markets Authority (CMA) recently published a summary of a set of warning letters it sent to businesses in relation to potential infringements of competition law in 2023, providing an invaluable insight into enforcement trends in competition law. A large portion of the letters issued in 2023 related to price fixing, with suppliers seeking to control the prices at which their products were sold throughout the supply chain, which in the context of franchising would cover franchisors seeking to control the prices at which their products were sold throughout the franchise network. It is anticipated that this sector will face greater scrutiny in the coming year.
If your business receives a warning letter from the CMA in relation to a potential breach of competition or consumer law, it is important that you act quickly and take advice on the nature of the breach. Acting fast is of vital importance, as failing to respond has historically resulted in significant uplifts to fines and in certain circumstances could lead to daily fines for failing to cooperate. The CMA has extensive dawn raid powers, akin to a police search, which are to be strengthened as a result of the Digital Markets, Competition and Consumers Act once it comes into force in January 2025. Organisations should therefore have a robust competition compliance policy and training programme for staff, clearly laying out dos and don’ts for competition law compliance, and what to do in the event of a dawn raid.
Adhere to the new directors code to demonstrate alignment with transparent, fair and responsible business – Paul Simpson, Corporate Partner
The Institute of Directors (IoD) published a new code of conduct for directors on 23 October 2024. It is a voluntary source of guidance that is not enforceable. The intention is to help directors fulfil their statutory and common law duties and gain the trust of the public in their business activities. It focuses on leading by example, integrity, transparency, accountability, fairness and responsible business.
The IoD encourages boards to publicly commit to the code; disclosure in annual reports, communication through social media, websites and to employees are all possible examples. A kitemark signifying commitment has been developed. This is something which both directors of Franchisor’s and directors of Franchisee’s should be aware of from now onwards to ensure compliance with the code.
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