The majority of franchise networks seek the input of their
franchisees on various issues. Often franchisors seek to formalise
these discussions via the establishment of a committee, council or
other body of representatives, which is often referred to as a
"Franchise Advisory Council" (FAC).
FACs are participated in, and generally initiated, facilitated and
funded by the franchisor, and are "franchisor led". They
are different from franchisee associations formed independently of
the franchisor to discuss supply and other business issues, and
which franchisors do not sponsor or lead.
The general purposes which a franchisor has for a FAC are to:
facilitate and enhance orderly communication between
franchisor, franchisee and other parties in the network; and
develop and implement strategies and ideas for the betterment
of the network.
If a franchisor does not structure a FAC correctly and with due
consideration of how it is to operate now and in the future, it can
create significant headaches for the franchisor. Set out below is a
checklist of issues to consider when establishing or
"revamping" a FAC.
Issues to be considered
The FAC should not be a separate legal entity
The FAC should be a committee or council only. If a FAC
were a cooperative or association recognised at law as a separate
(a)cooperative or association might need to be incorporated
pursuant to the Corporations Act 2001 (Cth) and/or registered under
the various State Cooperative Acts; and
(b) FAC may be able to bring legal proceedings in its own name
(e.g. against the franchisor).
The rules or guidelines regarding the operation of the FAC
should expressly state that the FAC is not itself a legal entity.
The rules establishing the FAC should be documented
The "rules" or "guidelines"
(Rules) regarding the operation of the FAC should
always be documented, so that all parties are clear on what it is
and their role within it.
The Rules should be set out in a dedicated document, and not
form part of the franchise agreement. This is because setting
them out in the franchise agreement will limit franchisors'
ability to alter the Rules and the structure of the FAC, as
franchise agreements can only be altered with franchisee's
The Rules should be reviewed to ensure that they do no limit
the franchisor's rights under the franchise agreement.
Indeed, they should expressly state that:
(a) nothing in them affects or limits in any way the
franchisor's rights under any franchise agreement;
(b) the franchisor will not be bound in any way to adopt the
suggestions, recommendations or advice of the FAC (if this is to be
the case); and
(c) the Rules do not require the franchisor to consult with, or
seek the approval of franchisees, on any issues (if this is to be
The Rules should:
(a) avoid the use of words like "consult" or "take
into consideration", which could be interpreted as requiring
the franchisor to seek the approval of the FAC in relation to
(b) expressly allow the franchisor to dissolve or change the
structure of the FAC at any time;
(c) not oblige the franchisor to disclose information to the FAC
(e.g. information regarding the possible sale of the business etc);
(d) to a certain extent, set out practical issues, such as:
(i) how many franchisee members will sit on the FAC;
(ii) how franchisee members will be appointed to the FAC (e.g.
elected by the network or appointed by the franchisor);
(iii) whether the franchisor will have the right to veto
nominations for election by the network;
(iv) how often the FAC will meet; and
(v) what issues the FAC will consider.
Careful consideration should take place before the FAC is given
any sort of decision-making power. The more power given to a
FAC the more detailed and extensive the Rules need to be.
The franchisor will have to comply with the Rules similarly to
franchisees, so it is important that they are clear and precise,
and provide the franchisor with the required flexibility.
FACs can be very effective tools in terms both of
franchisee engagement and the development of new ideas and
However, franchisors should avoid the temptation to "dress
up" the Rules and the FAC to look like more than they are. For
example, if the franchisor does not want to be bound to seek the
approval of the FAC before making marketing decisions, or indeed to
raise marketing issues with the FAC, the Rules should not imply
that the franchisor will do so.
Clear and concise rules will assist in the operation of the FAC,
help to avoid misunderstandings, and ensure that the
franchisor's decision making power is not diluted.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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