3 minute read
REGULATION
Cracking the code
Healthy franchises both create and spring from healthy franchisorfranchisee relationships. But inevitably, where there are business partnerships, there will be disputes. Franchising in South Africa has long been governed by the Consumer Protection Act (CPA), into which franchising regulations were introduced in 2011.
The Franchise Association of South Africa (FASA), however, felt the industry needed a system that regulated industry behaviour and also provided for an alternative disputeresolution process, and so formulated an Industry Code.
“One of FASA’s main goals is the promotion of ethical franchising.” – Eugene Honey, Adams & Adams
The FASA Industry Code was released for comment earlier this year. What does it mean for the industry moving forward? By ANTHONY SHARPE
Eugene Honey of Adams & Adams, FASA’s legal advisor, says one of the most signifi cant aspects of the consultation process was the incorporation of FASA’s Code of Ethics and Business Practice Guidelines – a move that was requested by the National Consumer Commission (NCC). “One of FASA’s main goals is the promotion of ethical franchising. So, with the NCC’s blessing, we embarked on a process of refi ning the code, arriving at one comprised of two key provisions: a mechanism for resolving disputes between franchisors and franchisees; and a code of conduct that regulates matters not necessarily addressed by the CPA.” The code provides for the establishment of a Franchise Industry Ombud to mediate disputes. Honey says fi rst prize for the ombud will be to resolve disputes “informally, costeffectively and expeditiously”. The code also explicitly sets out Eugene Honey the obligations of franchisor and franchisee, including those pertaining to legislation, advertising, discrimination and dignity.
BREACHING THE BANK
The mammoth Experian data breach of August this year, which saw the personal data of 23.4 million South Africans being compromised, was just one of four big breaches this year alone. A recent report by IBM Security found that, among the companies surveyed, the average cost of a data breach was a staggering R40.2-million. Average time required to identify a breach was 177 days (compared to the global average of 207), and 51 days to contain (compared to 73 days globally).
POPIA and franchising
Franchisors and franchisees have until July 2021 to become compliant with the Protection of Personal Information Act (POPIA), so it’s imperative to make clear their respective data responsibilities to avoid breaches and reputational damage. The act governs how data can be collected, shared and used, with the aim of preventing data subjects from discrimination and theft.
While the act doesn’t preclude you from marketing to customers or potential customers, it does stipulate how you may
DID YOU KNOW? POPIA requires all business websites to have a privacy policy outlining how they utilise information, as well as a cookie notice and policy. Email disclaimers should also be updated accordingly.
do so. “The biggest change under POPIA is that you can only market directly to potential customers electronically, for example, by SMS and email, if you have their consent,” explains Jesse Wrench of corporate law rm Michalsons.
THE BUCK STOPS HERE
Key for the franchise model is establishing who is responsible for what. “A franchisee and franchisor will probably be jointly responsible parties under POPIA,” says Wrench. “It is very important that the franchise agreement clearly sets out who owns the data and databases, and who is responsible for managing these. This is especially true if data is at the heart of the business. Often it will be the franchisor but not always; this depends on the business model. The franchisor should do most of the work for franchisees; this is much more effective than letting each franchisee gure it out,” explains Wrench.
If a franchisee is found to have outed the law and is the responsible party, they will be ned or sued for damages. “If the franchisor is held liable for the acts of the franchisee, the franchise agreement normally states the franchisee indemni es the franchisor and the franchisor can recover the damages from the franchisee,” says Wrench. Of course, the reputational damage of such a breach will negatively affect everyone.
New franchise agreements should explicitly de ne each party’s data responsibilities, particularly if the parties are jointly responsible. “We should review all existing franchise agreements – especially the con dentiality, data and IP clauses – and, if necessary, amend the agreement,” concludes Wrench.
