What is Franchising Law?

Last week, Saudi Arabia passed a specific law which regulates franchising in the Kingdom. In doing so, it has become one of a growing number of countries choosing to formally regulate franchising.

In contrast the franchising industry is not regulated in the United Kingdom. So, what is Franchising Law in the UK?

In the UK, “Franchising Law” is made up of the following:

1. General Commercial Law

Contract Law - which governs the Franchise Agreement and the relationship between the franchisor and franchisee;

Corporate Law - which concerns the internal operation of the franchisor and franchisee companies;

Property Law - which is important for any premises-based franchise; and

Intellectual Property Law - which affects the use of the franchisor’s brand and trade marks.

2. Specific Acts of Parliament – occasionally specific acts of parliament will apply directly to franchise relationships, such as the Trading Schemes Act 1996 which prohibits franchisees from sub-franchising, unless certain conditions are met.

3. Competition Law – European and UK rules on anti-competitive practices will apply to franchise relationships. By way of example, Competition Law prohibits a franchisor from fixing minimum prices at which a franchisee may sell the products.

4. Court Judgements – From time to time disputes between franchisors and franchisees end up in court. When they do, the judgement of that court then shapes the law going forward.

5. The European Code of Ethics for Franchising – The Code of Ethics is not a binding source of law. If the franchisor choses to ignore it, they are not in breach of any laws. However, it is a softer form of guidance as to what good franchising is and should be. Franchisees should always ensure that the Franchise Agreement that they are being asked to sign complies with this Code of Ethics.

6. British Franchise Association Guidance and Rules of Membership – All members of the BFA are obliged to abide by the Rules of Membership and the occasional Technical Briefings issued by the Association. Again, this is not a binding source of law as it only applies to BFA members and the penalty for non-compliance would simply be expulsion from membership. However, it still helps to shape best-practice for franchising in the UK.