It is unlikely that there will be an employer-employee relationship between the franchisor and the franchisee. This applies in particular if the franchise agreement contains express declarations confirming the independence of the parties and excluding any partnership or employment relationship. It is also unlikely that a franchisor would be considered an employer or co-employer of the franchisee`s employees. However, a franchisor must be careful when drafting (and operating) the franchise agreement to ensure that the franchisor does not exercise excessive control over the franchisee. Small franchises can be sole proprietors or partnerships, but most franchisors value limited liability protection and are therefore structured as limited liability companies. Franchisors may be public limited companies whose shares are listed on a recognized stock exchange. The franchisee must enter into the franchisor`s standard franchise agreement at renewal. There are no laws that determine how franchise agreements must be renewed or that include requirements when renewing them. In terms of law enforcement, if a franchisee violates non-compete obligations or restrictive agreements, the franchisor`s first action may be to terminate the franchise agreement. Upon termination, the franchisor will bring an action against the franchisee for breach of contract or, depending on the nature of the franchisee`s breach, seek an injunction to compel the franchisee to cease its infringing conduct or, as the case may be, to comply with its obligations. The criteria for granting an injunction by the court are discussed elsewhere in this chapter. If the franchisor is successful in a contractual claim, the likely remedies include damages for the franchisor for the losses incurred and possibly settlement of the profits the franchisee has made from the competing business.

A clause by which a franchisor attempts to set the prices at which a franchisee sells its goods or services (also known as “resale price maintenance”) is considered a “hardcore restriction” of competition, and its inclusion may invalidate the entire franchise agreement. Unless expressly stated in the franchise agreement, the default rate under the Commercial Debt (Interest) Act 1998 applies, which is currently 8% higher than the Bank of England`s base rate. 12.1 Is there a risk that a franchisee will be treated as a commercial agent of the franchisor? If so, is there anything that can be done to mitigate this risk? If a franchisee is successful in a claim for misrepresentation by negligence or fraud, they may have the right to terminate the contract (i.e. treat it as void) and pay damages to put them in the position they would have been in if the contract had not been concluded. This may allow the franchisee to request reimbursement of the original and all other franchise fees paid; reimbursement of all installation and operating costs (less profits); repayment of the cost of bank loans; and compensation for missed opportunities based on what the franchisee would have done or could have done if it had not entered into the franchise agreement. The damage can therefore be significant. We have a wide range of informative articles covering all aspects of the franchise industry. Check out our resource database or use the search bar to find specific topics. 1.11 Does membership in a national franchisee association impose additional obligations on franchisors? There is no legal minimum notice period that takes precedence over the contractual notice period specified in the franchise agreement. See question 12.1 below on minimum statutory notice periods for agency contracts.

The Trading Systems Act 1996 governs pyramid schemes and brands seeking to obtain a franchise in the United Kingdom should structure their franchise agreements in such a way that they do not fall within the scope of that Act. To be exempted under the Trading Systems (Exclusion) Regulations 1997, the parties must ensure that: (1) the franchise is a single-tier trading system (with only one tier of franchisees under the franchisor) or (2) the franchisor and all franchisees are registered for VAT, or both. There is no maximum duration allowed. Where the franchisor requires the franchisee to purchase from the franchisor or its designated suppliers at least 80 % of the products to be sold through the franchised entity, the supply agreement shall not qualify for the automatic safe harbour treatment under the vertical block exemption if: its duration exceeds five years; or the franchisee carries on business from premises or land owned or leased by the franchisor for a period exceeding the useful life of those premises.