When the Affiliate Rebels

Franchising, as we know, is one of the ways a retail or service brand can expand by opening new outlets. The goal is to create value for the brand by increasing numbers and turnover. However, the main pitfall is always lurking around the corner: managing the network of affiliates. Despite everything being regulated and safeguarded with contracts and operational manuals, the human factor, a variable that cannot be bound by clauses and paragraphs, is unpredictable and can cause friction or even real problems for the franchising.

The Incident

The owner of a small chain of franchised outlets has found himself, over the years, with a small group of affiliates fighting to have his rights to royalties respected, but above all, for the correct layout of the premises. Therefore, in addition to the case of non-payment, there was the aggravating factor of anarchy.

Critical Issues: Loopholes in Contractual Arrangements

An error that tends to be widespread among novice franchisors who are dazzled by the large number of spontaneous affiliation requests is excessive personalization and waivers of the “standard” conditions of the contract. These particularities and approximations in drafting the franchise contract inevitably lead to the loss of control over the network.

Solution: Restoring the Relationship to the Right Franchisor-Franchisee Dimension

The first step taken was to convene a meeting for discussion through an informal reminder by the franchising manager, both regarding compliance with royalty payment obligations and respecting the brand standards in terms of layout not uniformed to the directives of the parent company.

This step should suffice, but if the franchisee proves to be recidivist, then it is necessary to send a registered letter formally contesting the non-compliances, signed by the franchising administrator, with an invitation to comply with the obligations within a specified period.

A parenthesis must be opened regarding evidence. The franchisor must concretely demonstrate the violations of the standards, especially regarding the non-compliances that occurred in the outlet. This evidence is obtained through an on-site inspection, a written and photographic examination of the violations, and a final official report.

Then, always following any change in the status quo, move to the legal warning letter, attaching the complaints and evidence thereof, requesting a) the recovery of the credit b) the termination of the contract under the express termination clause provided in the franchise contract.

In this case, the franchisor, in addition to obtaining the amounts due, can request compensation for damages or payment of the penalty, if provided for in the contract.

If the franchisee fails to comply with the legal warnings, they will be subject to legal action, which will expose them to further economic burden including legal costs.

The objective, at this stage of the affiliation relationship, is however to save the brand. Therefore, the immediate effect of the termination of the affiliation contract should involve the cessation of the affiliated activity and the loss of the license to use the brand.

It should not be forgotten that franchising is an opportunity, but to be so, it must be guided by strict rules that, once accepted with the signing of the franchise contract, must be followed. In this case, Napoleon Bonaparte was right when he said: “If you wish to ruin a man, allow him every freedom.”