Nothing in life is certain and, almost every day, people are faced with unusual circumstances. Life rarely travels in a straight line and it can be particularly troublesome for business owners. And when the unexpected happens within a franchise network, it is usually up to the franchisor to think quickly and decisively on their feet.
In this article I advise franchisors on steps they can take to pre-empt such issues. By adopting a few precautions, business owners can better manage any problems that arise. It will save you hassle, management time, cost and legal expenses in the long run. I use three examples to explain how franchisors can prepare for the unexpected.
What to do when a franchisee dies
Always prepare for this eventuality from the outset. Regarding franchise agreements, franchisees should be advised to have a ‘will’ which clarifies what happens to the business if they die. Franchisors should always keep a record of a ‘will’, and any updates that occur, as well as know where the ‘will’ is physically stored.
They should also be aware of who the franchisee’s legal representatives are, and if anyone holds Power of Attorney. By knowing this information, it becomes much easier for the franchisor to manage this difficult situation for all. Franchise agreements typically include provisions that clarify what happens if a franchisee dies or becomes incapacitated.
These provisions will give a franchisor the right to decide whether the named beneficiary of the business is suitable to become the new franchisee. And always keep such documents close to hand.
To ensure the smooth running of the business, while legal matters are dealt with, a carefully drafted franchise agreement should include a provision that allows the franchisor to operate the business in the interim. This should include access to bank accounts, enabling the franchisor to pay staff and suppliers. Beneficiaries may require advice on their obligations.
Beneficiaries may not wish to take control of the business anyway. Therefore, a provision needs to be included that allows the beneficiary to proceed with its sale. The task of selling the business may also be given to the franchisor or a personal representative of the beneficiary. There may be provision for the business to be transferred to another franchisee or even a new purchaser.
Whistleblowing by franchisee staff members
Whistleblowing is one method by which franchisors receive insight about how a business partner treats their staff. To ensure that this information is available to the franchisor, and therefore stave off potential reputational damage to the brand, it is vital to have the correct policies and procedures in place. A franchisor must be able to discover if any wrongdoing is taking place.
Thus, the following details needs to be agreed:
– Policies on how, and to whom, an employee can raise a complaint;
– Clarification that whistle-blowers are treated confidentially. They must be allowed to complain anonymously through safe, private channels;
– Encouraging use of these systems without recrimination;
– Actively investigating issues raised, and then seeking to resolve them;
– Implementing training for all franchisees and their staff on issues of concern, such as sexual harassment.
A new law comes into force later this year that requires franchisors to have more vigilance over the actions of franchisees towards their staff. These laws also provide information about the necessary sanctions to be applied by regulatory bodies.
Compliance of these new laws is vital, meaning franchisors will now have to take reasonable steps to prevent wrongdoing, such as sexual harassment. And these steps involve more than simply including a policy in a handbook.
Handling disagreements between franchisee partners
This is another situation where preparation is vital for avoiding disruption within a franchise business. Where there is more than one main owner of a business, it is important that appropriate documentation clarifies what should happen if these owners have a disagreement.
These are called shareholders agreements: An LLP members’ agreement is created by all shareholders to resolve any issues that may arise in the future. In the event of a dispute between members, it is vital for a solution to be swiftly reached by consulting this members’ agreement.
Such as deciding what an outgoing business partner will be paid for their stake in the business. These agreements must also clarify the duties, roles and responsibilities of all the individual parties.
At the outset, all parties need to sign the franchise agreement. This way, all key stakeholders are bound by the terms of this agreement. It ensures that the key stakeholders possess the appropriate legal documentation to deal with any fallout between members. And it will be necessary for stakeholders to have sufficient funds available to implement a buyout if a member departs the business.
‘Key Man’ insurance refers to policies that protect businesses from the loss of an individual when a stakeholder departs, dies or becomes incapacitated. This will make the process of handling a dispute much smoother. Franchisors are advised to ask franchisees for a copy of this documentation.
Conclusion
Therefore, as outlined by these three examples, it is important that both franchisors and franchisees prepare for any unexpected problems. Time taken to manage risks at the start will prove invaluable if an issue arises. Always have policy documentation and insurance details close to hand at all times.
