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Franchisees are Independent

Written by: John Power

Article Overview: It is important that those visiting or doing business with your franchisees know that the business is independently owned and operated.

Franchisees are Independent

It is important that you operate your franchise programin a manner that does not give the impression that you are actually in control of the franchised businesses. In an article published in Franchise Times, Charles Modell, an attorney with the law firm of Larkin Hoffman Daly & Lindgren, in Minneapolis, wrote, "Liability (for franchisee's actions), known as 'apparent control,' is easily avoided, by making it clear to consumers that the franchisor does not own the business they are patronizing. Signage should be placed in prominent view of the customer, at the site of the franchised business, advising customers that the business is owned by an independent franchisee." He went on to state that you should also impose minimum standards regarding such things as health and safety issues.

If your business is of a restaurant or retail nature, you should consider requiring your franchisees to give notice to customers that the business is owned and operated by the franchisee. This can be done by posting a small sign like the example shown below. Perhaps you should even provide such a sign, which can be made as a plaque at a trophy shop.

"This _________ (franchisor brand) _________(type of business) is independently owned and operated by _______(name of franchisee), a franchisee of _______(legal name of franchisor).

The phrase "independently owned and operated" should appear in all marketing materials, invoices, and agreements signed between the franchisee and customers. Franchisees should be licensed do business under your name, and should not use your name as part of their legal business name. A napkin in a SubWay franchise stated, "Each Subway restaurant is franchisee owned and operated. For franchise information and comments call....."

A statement similar to this should be included in the Human Resources Section of the Confidential Operations Manual:

"Franchisee is solely and exclusively responsible for the hiring, supervision, work direction, discipline, and compensation of Franchisee's employees, for the payment and withholding of all payroll and other taxes required or determined by wages and salaries of Franchisee's employees, and for complying with all applicable laws relating to worker's and unemployment compensation, proof of employability, safety, disability, worker's compensation insurance, non-discrimination and anti-harassment, and all other laws relating to labor and employment. Franchisee acknowledges that ________________________(franchisor name) has no control over Franchisee's labor policies and no control over Franchisee's employees, including but not limited to, the terms and conditions of their employment."

Ask yourself, "Does it appear that I am actually running my franchisee's business?" Be sure that the public knows that the business is a franchise. You should seek legal counsel for additional information if necessary.

More information can be found at: www.biltmorefranchise.com

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Article Tags: franchise information, franchise program, franchise times, franchised businesses, franchisees, franchisor, health and safety, hoffman, human resources section, independent franchisee, invoices, larkin, legal business name, lindgren, marketing materials, safety issues, signage, subway franchise, subway restaurant, trophy shop



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Chain store hurdles - [quote:3v8nzz4s]Everyone I'm targeting are independent stores which helps me overcome one hurdle. [/quote:3v8nzz4s] What hurdle is that? I know the major stores like B&N, etc. like to deal with buyers and distributors, but I think they all cut some slack to "Local" authors, don't they? Every store I go into has its "Local Section," featuring local authors, as well as books about the locality. I wouldn't bypass them altogether. If you drive past one, why not go in and visit, talk to the manager, see what they say? [quote:3v8nzz4s]Bookstores want to order through Bowkers and I have their info and the ISBN (identification) numbers for my books. [/quote:3v8nzz4s] You mean the major chain ones do, right? Independent stores I think have no problem dealing directly with the publisher/author. But you want to get your money up front if possible in case they go out of business....as too many independents do these days.
Re: Template of Service Agreement/Contractor Agreement - Shimmy- I, too, would be happy to share my template contract for a service provider. But beware, a template agreement may not be sufficient to properly address your needs. Some key differences between Employees and Service Providers: 1. Tax Status. Employers are responsible for withholding tax on employee's earnings. Independent Contractors are responsible for reporting their income/taxes. There is a significant reporting burden and liability associated with this. 2. Confidentiality/Intellectual Property. Often times, employee handbooks will specify an employees confidentiality obligations and many states impute a duty of loyalty. Contractors are under no such obligations absent a written agreement. Same thing for IP/Creative works. The copyright Act draws a sharp and significant distinction between employees and contractors when it comes to ownership of creative works. 3. Liability for tortious acts. Generally an employer is liable for the tortious acts of its employees under the theory of respondeat superior. An entity hiring a contractor may/may not be liable, but without a written agreement for the contractor to indemnify/defend the hiring entity, their may be little recourse against the contractor. There are many other subtle differences too numerous to mention. I hope you find this helpful.
Re: Template of Service Agreement/Contractor Agreement - [quote="Dave_Adler":21fe7egl]Shimmy- I, too, would be happy to share my template contract for a service provider. But beware, a template agreement may not be sufficient to properly address your needs. Some key differences between Employees and Service Providers: 1. Tax Status. Employers are responsible for withholding tax on employee's earnings. Independent Contractors are responsible for reporting their income/taxes. There is a significant reporting burden and liability associated with this. 2. Confidentiality/Intellectual Property. Often times, employee handbooks will specify an employees confidentiality obligations and many states impute a duty of loyalty. Contractors are under no such obligations absent a written agreement. Same thing for IP/Creative works. The copyright Act draws a sharp and significant distinction between employees and contractors when it comes to ownership of creative works. 3. Liability for tortious acts. Generally an employer is liable for the tortious acts of its employees under the theory of respondeat superior. An entity hiring a contractor may/may not be liable, but without a written agreement for the contractor to indemnify/defend the hiring entity, their may be little recourse against the contractor. There are many other subtle differences too numerous to mention. I hope you find this helpful.[/quote:21fe7egl] I was thinking these same points as I was reading the earlier posts. I've been working with independent contractors for years - first as one, and then hiring many of others. These are three of the key things to be sure you include in your agreement. If they are truly an independent contractor, they are reasonable to handle their own taxes. I always include a confidentiality clause and very few have tried to break it. Liability can be a huge issue, depending on the sort of business you are in. In the US - there are all sorts of tax rules for state and federal government to distinguish if a person is or is not an independent contractor. If you make the wrong choice there are all kinds of penalties to be paid. Another thing that should be considered is that your business worker's compensation and/or liability insurance may have to cover these people. I know in construction, I'm charged for any independent contractor and their employees if they don't have their own insurance. That can get really pricey. If you're in a similar situation, talk with your insurance company, some will allow an independent contractor to sign an agreement that they will waive your responsibility to insure them. You would still need to pay for their employees, but it does save some money during an insurance audit. Chris
Franchise Success Factors - Evan, I know it's been a while but maybe this will help: A great piece of information (academic research) that is important to all franchisors and franchisees is that of Scott Shane and Chester Spell who demonstrate that ¾ of all franchise systems fail within the first 12 years, and less than 1 in 4 survives until the end of the contract. Originally published in the Sloane Management review in 1998 the article is one of the more common sense pieces of writing covering the franchise industry. They identified a number of important franchise success factors that should be used to assess the likely success of a franchise system. They are: •Rapid growth (or planned rapid growth) of the franchise means that they can begin to reach a level to compete with existing players in the marketplace. •Local management support of the franchise aids rapid growth •Demonstrable trustworthiness and high quality systems They studied 157 companies in 27 industries and identified that one third of systems stop franchising in their first four years. They say “The high death rate of new systems suggests that franchising is not an easy business”. They developed a model called NewFran which points to the contributing factors of success: •A recognised successful history before franchising. This resulted in a recognised ‘brand name’ that could not be easily copied. Systems, marketing, premises e.t.c could be easily copied by competitors – a brand could not •Economies of scale i.e cheaper costs because they are larger, in marketing. This was achieved through being a bigger brand. •Rapid growth of the franchise allowed the brand name to develop quickly and stop competitors from copying or replicating the business idea. •Using local franchisees to use their local knowledge to determine local business decisions and operate with fewer ‘local field operations’. This means the franchise resources can be concentrated on branding, marketing and growth. The entrepreneurial ‘drive’ of the franchise owner is concentrated on building the business. The opposite of this is by keeping close control on local franchisees by appointing Master Franchisees. This was shown to develop ‘passive ownership’ which undermines the entrepreneurial incentives of outlet ownership. The said “therefore growing quickly, through master franchising, increases the probability of system failure” The article recommends some things off the back of this that seem to go against some of the ‘industry norms’ of franchising: •Franchisees should seek franchisors that are expanding rapidly. •Franchisees should not seek a franchise that promises a lot of field support •A lean operation at headquarters is a success predictor •Franchisees should seek franchisors with strong brands or at least a plan as to how they will develop a strong brand •Franchisees should be a member of a regulatory body •Franchisees should be wary of franchises that offer master franchising. Whilst this speeds growth it also increases the likelihood of failure. I would agree with all of the points raised and would like to just clarify that they suggest that in depth field support is bad – not in depth sales and marketing support. cheers


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