‘Key tensions within the franchisor/franchisee relationship’

By Gordon Drakes, Partner, Fieldfisher

The recent BBC investigation into alleged working practices at McDonald’s has attracted a lot of political interest (including the PM’s spokesperson and the chair of the business and trade committee), no doubt due in par t to the brand’s recognition and the fact that it is one of the largest private sector employers in the UK, with one of the youngest workforces.

The allegations are of course ver y concer ning, and it is unfor tunate that this stor y will inevitably have an impact on the wider perception of the franchising sector in the UK, given that McDonald’s, under the leadership of Ray Kroc, was the pioneer of the franchise model in the late 60s

Writing purely from the nar row perspective of a franchise lawyer, this type of stor y does highlight some key tensions within the franchisor/franchisee relationship, such as:

1 The cour t of public opinion will not always take account of the legal separation between franchisees and franchisors However, this is not a single employer issue, but presumably applies to multiple franchisee employers and possibly also to cor porately operated stores It shows that it takes just one rotten apple to spoil the apple car t

2 Does operating a franchise network amplify the risk of bad practices taking root and going unchecked, or can it achieve the opposite effect? I don’t know the answer to this.

In my experience, levels of training, control and audit var y signif icantly between franchise systems, and I would have thought this brand would be at the more controlling end of the spectr um Franchisors should use this as an oppor tunity to review their own policies, procedures and training and consider how closely they know and understand the employment str uctures of their franchisees

3 This type of issue could lead to contract ter minations Indeed, Labour’s Dar ren Jones said McDonald’s should ter minate deals with any franchisees that were “not following labour law”

It is common for a franchise ag reement to contain clauses which allow for ter mination in the event that a franchisee has damaged the reputation or goodwill of the brand

However, ter mination is not an easy decision – franchisors need to consider what follows and consider the risks of whether a ter mination is the most appropriate course of action. If the franchisor is also implicated, to what extent does that limit the ability of the franchisor to take action?

4 When it comes to employment matters, franchisors need to tread carefully and not interfere with a franchisee’s employment processes.

Requiring a franchisee to f ire employees

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could result in an employment claim being brought against the franchisee and the franchisor as ‘joint employers’ – this is an ongoing, existential issue for franchise systems in the U S

It was McDonald’s that lit the fuse on this in the U S , when the franchisor required a franchisee to f ire employees who were protesting in a McDonald’s parking lot demanding a minimum wage

5 If you are a franchisee and your business is tar nished by the actions of other franchisees and/or your franchisor, where does this leave you?

In reality, it is ver y unlikely that a franchisee will have any legal recourse, but bad facts can create bad law, and in an inter national legal environment which seems to be focused increasingly on balancing perceived inequities in the franchisor/franchisee relationship, it’s not inconceivable that franchisors may star t to f ind themselves subject to additional duties of care and responsibilities n

Termination is not an easy decision – franchisors need to consider what follows and consider the risks of whether a termination is the most appropriate course of action

Gordon Drakes is a Par tner and co-head of the franchising and commercial team at European law firm, Fieldfisher

He is a BFA affiliated solicitor The Legal 500 ranks Drakes as a ‘Leading Individual’ and Who's Who Legal: Franchise 2023 ranks him as a Global Thought Leader gordon drakes@fieldfisher com www fieldfisher com