Chancellor of the Exchequer Philip Hammond recently delivered the Autumn 2017 Budget, the first budget in the new annual tax policy-making cycle. Although there were no radical policy changes, some changes will affect the UK franchise business sector, particularly with regard to the tax treatment of royalties, corporate tax and the digital economy, environmental tax, value added tax and business rates.
Most franchise agreements in Sweden contain an arbitration clause. When entering into a settlement agreement a franchisor must ensure that the arbitration clause in the franchise agreement explicitly covers the settlement agreement. The easiest way to do this is to put an arbitration clause into the settlement agreement.
The Federal Court of Justice recently ruled that an authorised dealer, such as a franchisee, has no compensation claim in analogous application of the regulation governing sales representatives contained in the Commercial Code if the franchisor is contractually obliged to block the customer data provided to it by the franchisee, to discontinue using it and to delete it at the request of the sales intermediary when the contract is terminated.
Renewal clauses are common in commercial contracts, particularly in the case of franchise agreements. The Supreme Court recently upheld the validity of a clause which had the effect of allowing a franchisee to renew a franchise agreement perpetually. In its landmark judgment, the court affirmed the lower courts' determination that a renewal clause which does not limit the number of times that a contract of affiliation may be renewed is legal pursuant to Quebec civil law.
A number of businesses which franchise will interact with the gig economy, particularly those which operate with a low entry threshold, such as contract cleaning and other service-based franchises. Both franchisors and franchisees in these sectors may have individuals working for them in this capacity, so they must be aware of existing issues and the regulations that will likely be introduced.
One of the key components of any franchise agreement is the transmission of know-how by the franchisor to the franchisee. Absent this, the agreement may be held null and void or requalified as a mere distribution agreement. In a recent decision, the Supreme Court held that the absence of any pilot outlet run by the franchisor does not amount to a lack of know-know transmission.
The Payment Practices and Performance Regulations 2017 require large UK businesses to report publicly twice yearly on their payment practices and performance. Large franchisors must ensure that they comply with this new regime. For franchise businesses which fall below the reporting threshold, the regulations are good news, as they are designed to improve and promote transparency and fairness in supply chain management.
The first half of 2017 brought the United States a new presidential administration and a number of changes to state franchising regulations. While Florida has rejected new franchise legislation, multiple states are amending existing franchising laws, including Illinois, Georgia and Indiana.
In recent years, the commercial titles of the Civil Code have been aligned more closely with international commercial practices and the Russian courts have been enforcing these new standards. These improvements are noticeable in the area of franchise law. Because these statutory provisions are new, franchisors should check the latest court decisions for additional guidance before structuring transactions based thereon.
Until recently, there was significant doubt as to the validity of fees payable by professional franchisees on the basis of professional revenue. However, two decisions in Quebec have established certain conditions for such fee payments to be considered valid, in particular that the fees are related to the fair market value of the goods or services provided to the professional.
The Food and Drug Administration (FDA) recently announced that it will delay enforcing its new menu labelling regulations. The FDA issued an interim final rule to extend the compliance date from May 2017 to May 2018. As currently drafted, the menu regulations will require covered food establishments to provide caloric information on specified menus in a particular manner, as outlined in the law.
The North American Securities Administration (NASAA) recently issued the final draft of its new financial performance representations (FPR) commentary. NASAA issued the new FPR commentary because the Federal Trade Commission Franchise Rule permits a franchisor to disclose financial results in Item 19 of the franchise disclosure document, provided that it has a reasonable basis.
The Small Business Administration (SBA) has rolled out new regulations aimed at reducing administrative costs and the time spent approving franchise companies, while also decreasing the SBA's risk in relation to SBA-guaranteed loans to franchises. Under the new rules, lenders are required to determine whether a brand is a franchise under the Federal Trade Commission's amended Franchise Rule.
Under French civil law, a party to a contract has a duty of loyalty to its contracting party in the performance of the contract. The Supreme Court recently applied this duty of loyalty to a franchisor which had concluded a framework contract with a master franchisee. The court held that the franchisor did not cooperate with, assist or advise the master franchisee loyally. The court also held that it had terminated the framework contract in an unfair manner.
The European Franchise Federation (EFF) recently adopted a new version of the European Code of Ethics for Franchising. The updated code aims to address some of the perceived imbalances and inequities in the franchise relationship and bring self-regulation into the digital age. However, although the British Franchise Association's (BFA's) interpretation of the code may include some variations from the EFF's text, much of the BFA's existing code and its practices are already in line with these updates.
It is common for a franchisor to initiate litigation when a former franchisee uses the franchisor's confidential information or trade secrets or otherwise fails to return such information following the expiration or earlier termination of the franchise agreement. As one case makes clear, franchisors in Texas must pursue any tort claims relating to a franchisee's improper use of the franchisor's trade secrets or confidential information under the Texas Uniform Trade Secrets Act.
A recent Quebec Court of Appeal decision reversed a Quebec Superior Court ruling which had granted authorisation of a proposed class action by consumers against a franchisor for alleged misrepresentations made by its franchisee with respect to the purchase of an extended warranty for consumer goods. The case illustrates the difficulties often faced by franchisors in relation to class action proceedings brought by consumers at the authorisation stage.
The Federal Court of Justice recently criticised a franchising advertising flyer in terms of competition law. One interpretation of this judgment is that it makes the advertising of franchise systems significantly more difficult. However, this point of view does not ultimately do justice to the decision, as the judgment does not fundamentally question the typical advertising of franchise systems.
Franchise and lease agreements are different, but are usually bound together in an agreement bundle and signed simultaneously by the franchisor/landlord and the franchisee/tenant. These two agreements usually each contain a provision explicitly stating that they are dependent on each other. However, two sets of rules collide – the non-right of the franchisee to compensation according to the franchise agreement and the right of the tenant to compensation under tenant law.
A Brandenburg Higher Regional Court decision regarding the payment of franchise and marketing fees in arrears shows the importance of a substantiated presentation of a claim, as well as the importance of accurate, transparent and comprehensible billing by franchisors. The court could not ascertain whether there were unpaid franchise or marketing fees, as the franchisor failed to present sufficient facts demonstrating the exact amount of the franchise and marketing fees in the respective timeframes.