As 2023 draws to a close, the rapid pace of change continues across business and the UK in general. The franchise sector is no different with new and existing franchisors changing the market in recent years, the regulatory environment evolving and technological enhancements continuing, a fresh approach may be needed next year. A new year is a traditionally an opportunity to review strategies, re-align goals and agendas and (for some) get fit! We have set out below some issues you can take steps to address in the new year to keep you in (legal) trim, despite the excesses of the festive season!
We have highlighted below, some of those key areas where franchisors and franchisees should have an eye out for into 2024 and beyond…
The increasing use of technology in franchising
The increasing use of technology in franchising is likely to lead to a number of legal issues, such as:
- Franchisors and franchisees will need to continue to ensure that they are complying with data privacy laws and regulations. The ICO has recently been flexing its muscles in respect of direct marketing, with multiple fines being issued in 2023, we would expect this to continue and possibly broaden into 2024, especially after they announced that they are seeking future enforcement for misleading or incoirrect cookie notices on various retailers’ websites last month.
- Whilst there is a rush to implement new technology into franchise networks, the implementation can require a significant upfront and ongoing capital investment, which may change the nature and balance of franchise relationships, especially given the usual duration of franchise agreements. Franchisors should be scanning the horizon now for future developments or at least ensuring that their agreements contain suitably flexible language to ensure that enhancements can be made to accommodate changes in technology over time. Many franchisors may look to rely on the manual to make changes to the technological infrastructure of a network, but care should be taken as this could potentially be unenforceable or lead to disputes arising.
- Licensing arrangements need to be considered properly too. Franchisors will need to carefully draft and negotiate technology licensing agreements with their franchisees and ensure that they have a robust arrangement in place for the management of third party licenses into the network.
The rise of non-traditional franchising models
Non-traditional franchising models, such as virtual franchising and area development agreements, are becoming increasingly popular in the UK. These models can be more complex than traditional franchising models, and they may raise a number of legal issues, such as:
- Defining of the franchise relationship: It may be more difficult to define the franchise relationship in non-traditional franchising models. This can lead to disputes between franchisors and franchisees over issues such as control and ownership.
- Centralisation of branding and operational integration, whilst ideal for consistency and uniformity could increase franchisees’ reliance on franchisors and in-turn increase the responsibility of the franchisor and ultimate risk of liability.
Franchisors should carefully consider the legal implications of non-traditional franchising models before entering into such arrangements.
McDonalds came under recent scrutiny by the media and as a result, MPs for its employment practices. One key takeaway from this is that the media, the public and some MPs conflated the franchisor, in this case McDonalds, with the franchisees. Whilst the allegations in the investigation carried out by the BBC were extremely serious, it is important that franchisors do not seek to step in to set employment terms for the franchisee’s staff. The action that they could take is limited to putting pressure on the franchisee itself and ensuring robust training and management systems are prevalent throughout the network.
- With an election due in 2024, it is possible that the incumbent government may seek to make changes to the regulation of franchising, which is famously self-regulating, to seek some positive PR before an election arrives. Given the timetabling of parliament, such a change is unlikely in 2024 but it is one area to keep an eye on, especially with hungry regulators seeking to enhance their powers further… (see below!)
The impact of changing consumer expectations
Consumer expectations are changing rapidly and regulators are trying to keep pace, this is resulting in several proposed changes to consumer protection in the UK. Primarily, a new consumer bill tracking through the House of Lords currently looks set to come into effect next year, and UK franchisors will need to adapt to these changes in order to remain competitive. Depending on its final form, it will raise a number of legal issues, such as:
- New powers for the CMA to quickly change consumer rules in order to keep pace with market changes;
- New rules on subscription contracts popular across many franchises in the UK, including providing pre-contract information, reminder notices, enhanced ‘cooling off’ rights and simpler exit routes for customers;
- Enhanced powers – the CMA is set to be granted stronger powers of enforcement, raising the possibility of quicker targeted enforcement and significant fines for breach of the new rules,
UK franchisors should regularly review their consumer facing documents and ensure that they are complying with all applicable consumer protection laws as they change.
I have almost managed to get to the end of an article about the future without mentioning AI, but I couldn’t resist! So whilst UK franchisors should take steps to stay up-to-date on these legal issues by attending industry events, reading legal publications such as Elite, and seeking legal advice from experienced franchise lawyers, they should be very aware of the potentially massive changes in the industry due to the further roll-out of easily accessible AI programs and applications, more on that in a future article!
Happy New Year when it arrives!
For more information on any of the above topics, please contact our Franchise Team: firstname.lastname@example.org