The popularity of the internet and e-commerce has proven to be problematic for established franchisors and franchisees. Claims made by franchisees in recent years have seen this as a new form of encroachment as established franchising systems have not originally considered online presence at the time of drafting franchising agreements.
The result of many cases has been dependent on the wordings within franchising agreements and takes into account if the franchisee held an exclusive territory to which the franchisor has encroached and breached. Modern day franchise offerings have begun documenting in more defined detail about which advertising channels are considered to be exclusively granted to the franchisee and what activities including online sales the franchisor may perform online.
Under the Franchising Code of Conduct, the mandatory franchise disclosure document requires prior disclosure from the franchisor to a franchisee of information relating to the franchise territory and whether it intends to sell the same goods or services online.
Exclusive territories are commonly agreed upon where the franchisor agrees not to establish a competing business or allow another franchisee to operate within the outlined boundary established. Franchisors commonly market to attract prospective franchisees as an exclusive territory is seen to be a major selling point. On the other hand, exclusive territory also limits the franchisees ability to advertise outside of the defined exclusive area. Advertising in local publications can encroach on another franchisees defined area; mobile franchises that are service based usually prohibit franchisees from advertising their direct phone numbers and often puts in place marketing restrictions on franchisees maintaining their own website and social media profiles.
Case Study
Business owner Dean operates Uncle Ben’s Gold Coast Removalists which is part of the well-established Uncle Ben’s service based franchise network. The franchise has franchisees operating Nationwide, although Dean owns his truck, he is required to have the franchise 1300 number marketed on his truck and not his own mobile number, he is required to keep the consistent image and logos displayed by the franchise network. Dean will not be able to market his business in publications that circulate in many franchised territories. He may however be able to utilize ecommerce websites that help consumers compare removalists.
Opportunities are being created by the internet in which franchising agreements have not clearly defined the limitations of online advertising; therefore it is important to speak to a franchising lawyer who can assist with any questions about your obligations as a franchisee.