UK: How Will Franchising Be Affected By Brexit?

Last Updated: 19 July 2016
Article by Babette Märzheuser-Wood and Robyn Chatwood

Following the Brexit vote, the international franchise community needs to consider the implications of the exit of a major European economy, the United Kingdom, from the EU. Europe is an important market for many UK and US franchisors. How will franchising in Europe be affected by Brexit?

Supply chain

Franchise systems that involve the supply of goods and services to franchisees in Europe will need to prepare for the potential end to the free movement of goods in two years' time when the UK ceases to be a member of the EU. Import duties may be imposed by the EU on products made in the UK and UK franchisors that manufacture in Europe may need to reorganise their supply chain. Import from some non-EU countries, on the other hand, may become easier. Franchisors may need to identify countries with a strong treaty network and channel some products via those countries to minimise import duty. The next two years will be a period of uncertainty as franchisors have to decide whether to wait for the outcome of exit negotiations before restructuring their supply chain.

Examine supply contracts

Franchisors need to examine existing supply contracts to consider how and when they can be terminated or renegotiated. Where possible, franchisors may wish to terminate long-term contracts and replace them with shorter-term agreements allowing more flexibility during this period of change and uncertainty. Another potential option to consider would be to invoke force majeure provisions to end potentially onerous contracts such as purchasing agreements with Euro pricing.

Increasing regulatory burden

Whilst importing from some non-EU countries may become easier, some franchisors may have to go back to old-style import departments to cope with the paperwork. Some franchisors are already identifying countries with a strong treaty network and may begin to channel certain product supplies via those countries to minimise import duty. Legal issues associated with importing from outside the EU include the need to comply on a per-country basis with a different set of rules regarding matters such as certificates of origin, safety certificates, import permits and licences. Currently the EU takes care of that. Franchisors will need to build their knowledge of import export laws and may have to increase head count in this area.

Competition law and online sales

EU competition laws have traditionally been pro-franchising, allowing franchisors to set maximum prices and providing generous exemptions from prohibitions imposed on other business trading in Europe. Many of these exemptions are based on EU case law, which will no longer be binding on the UK following its exit from Europe but which will continue to apply in the rest of the EU.

The UK has its own well-established competition law regime but that regime is closely modelled on EU law. EU competition rules are designed to remove certain national barriers to cross-border trade such as exclusive territories and restrictions on purchasing parallel traded products. The EU competition laws also prohibit restrictions on online sales.

Post Brexit, franchisors may have more scope to ring-fence the UK market from competition from their own franchisees (particularly online competition). However, there is a risk that franchisors may also lose some of the current privileges that the EU courts have historically made available to them.

Franchisors need to evaluate the impact of these changes on their business model.

Enforcing the franchise agreement

Many international franchise agreements are governed by English law and subject to the exclusive jurisdiction of the English courts. At present, disputing parties within the EU rely on two main EU regulations to identify:

  • which courts will have jurisdiction over a dispute;
  • which law will be applied; and
  • how a judgment will be enforced.

Going forward, these EU regulations would no longer apply.

Enforcing a UK judgment in EU Member States would depend in future on bilateral treaties between the UK and the relevant EU country or any future arrangement that the UK may be able to negotiate with the EU. It is also possible that the UK may sign the Lugano Convention or the Hague Convention.

In some cases, it may be open to foreign franchisees in the future to challenge the choice of English law to govern the franchise agreement – a particular risk if the franchise agreement does not have sufficient connection with the UK. However, if the franchisor is based in the UK, this will usually constitute sufficient connection, so the concern arises principally for foreign franchisors using English law as a neutral law.

The bigger issue is thought to be the enforcement of UK court decisions. Potential solutions include choosing a non-exclusive jurisdiction, changing jurisdiction to the courts of a Lugano Convention country, such as Switzerland, or moving to arbitration as the preferred dispute resolution mechanism.

Protecting your IP

It seems inevitable that an unintended consequence of Brexit will be that the protection of intellectual property rights will become more expensive for franchisors.

In short, at present all 28 EU Member States benefit from a range of EU-wide intellectual property regimes such as EU trade marks and registered Community designs. Some intellectual property is centrally managed – such as trade marks administered by the European Intellectual Property Office (formerly OHIM). For franchisors that own or license intellectual property across a variety of European countries, these regimes are cost effective.

Patents

Plans were well advanced at the time of the EU referendum for a Europe-wide unitary patent, which meant that a single patent application would cover most European countries. This will generate massive cost savings. Post Brexit, franchisors will need separate UK and EU protection to cover all territories for their inventions and innovations.

Trade marks and designs

Currently, trade mark and design protection is available across all 28 Member States with a single EU trade mark (the EUTM, which was formerly called the CTM) and Community designs. In the future, national UK trade marks will need to be maintained separately from the EUTM and so franchisors will need to budget to spend more money in order to protect their trade marks and register in both the UK and the EU rather than just in the EU. It is likely, however, that there will be some form of transitional regime to deal with any existing EU trade mark portfolios (which would currently cover the UK) to enable those trade marks to retain or obtain protection in the UK once it leaves the single market.

Another issue for franchisors to consider is the impact of changes to the current system for registering their trade marks with customs authorities in the EU to help prevent the importation of counterfeit products. It will be important in future to ensure that both national and EU rights are registered with customs. It remains to be seen whether there are other enforcement issues looming as it is not clear whether the UK will continue to have access to the Enforcement Database, which contains information on products that are granted an intellectual property right (such as a registered trade mark or design). At present, police and customs officials of all 28 Member States can access this tool to view information and product details, making it easier for them to identify counterfeits and take action.

Copyright

Most franchise systems rely extensively on copyright to protect their operations manuals, logos, unregistered trade marks, databases and software. Given the cross-border nature of franchising, most franchisors and franchisees wish to rely on a broad range of cross-border intellectual property protection to deal with copyright infringers.

Many domestic copyright laws in the UK stem from EU laws and the various Member States of the EU have increasingly aligned their approaches over time. Courts in the UK interpret such laws consistently with decisions of the European Court of Justice.

The effect of Brexit on copyright is still unclear. We recommend that franchisors monitor changes to the enforcement regimes. This is especially so with the notice and take down processes, which are at present operated by online hosts in response to court orders or allegations that certain content is illegal.

Trade secrets

In April 2016, the European Parliament had approved the new European Union Trade Secrets Directive, which is designed to protect trade secrets. The new law has been of great interest to franchisors as confidential information forms the basis of most franchise systems and can be notoriously difficult to protect.

It now seems certain that the UK will not be enacting any national laws to implement the new Directive and so the UK law and European law will continue to diverge. Franchisors should, in the meantime, ensure that their confidentiality agreements comply with both UK and European laws. Franchisors should ensure they have contractual rights in the franchise agreement to provide protection against unlawful uses of their trade secrets as they will not be able to benefit from the new Directive.

Impact on employees

Stopping the free movement of EU workers was a key factor in the Brexit vote. It is unlikely that the EU will allow the UK to close its borders to EU workers whilst allowing UK workers full freedom of movement in Europe. Franchises that rely on UK nationals to work in Europe in the franchise (whether in the franchisee or the franchisor business) to support the local franchise network may need to apply for work visas and residence permits. An alternative would be to consider hiring EU citizens to fulfil these roles.

Fortunately franchisors will have two years to consider their employment strategy. Most franchisors do not employ a large number of staff abroad, as the franchisees will be the principal employers of the local workforce, but local support offices may be affected.

Another issue is that a significant proportion of the UK's domestic employment legislation is also driven by the EU and it is unclear whether this will remain the case. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects workers by automatically transferring contracts of employment when there is a transfer of a business – which may occur when there is a change in the franchisee allocated to a territory or customer group. These laws restrict what can be done in respect of transferring employees. It seems unlikely that there will be a complete repeal of TUPE given the current political landscape and the fact that these workers' rights have been a feature of the legal regime for around 30 years, but, until the issue is dealt with, uncertainty will remain.

Franchisors should nevertheless review their current TUPE contractual provisions to ensure that, if there is a wholesale change in the legal regime, the TUPE provisions will be able to be varied.

Action plan

In summary, the direction of travel under the EU has been to harmonise laws and, with Brexit, the direction will be fragmentation as laws in the UK diverge from those that apply in the EU. There will be considerable uncertainty until the new regime has been put in place, which may take up to two years. We emphasise that EU intellectual property rights of franchisors and franchisees are still enforceable in the UK in the interim.

Franchisors should put together an action plan to address the potential impact of Brexit on their business. Key issues to consider would include:

  • Impact on the supply chain, particularly where the system involves supply of products to franchisees in Europe or the sourcing of products from EU Member States.
  • Impact on your intellectual property portfolio. Leaving the EU will mean that rights such as European trade marks or registered designs are no longer valid in the UK. Franchisors will need to review their IP portfolio, filing and enforcement strategies and consider filing additionally for national protection in the UK.
  • Impact on staff. Franchisors should review to what extent they are reliant on free movement of workers. Contingency plans should be made for staff working in Europe and for potential transfers on termination of relationships.
  • Impact on legal agreements. If your agreements are governed by English law and subject to the jurisdiction of the English courts, will you have difficulty enforcing them post Brexit?
  • Competition law. Franchisors may lose the special privileges created by European case law. However, they could benefit from a better ability to ring-fence their domestic market.

The Franchising group will be hosting individual workshops around this topic for clients who need one-to-one advice, as well as incorporating the topic into its well-known masterclass series.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
6 Sep 2018, Business Breakfast, Glasgow, UK

Decarbonising our heat is a key component of The Scottish Energy Strategy and an essential piece of the complex matrix we must tackle if we are to meet our climate change obligations.

11 Sep 2018, Business Breakfast, Milton Keynes, UK

Join us for our next development breakfast round table event reflecting on the on-going planning discussion regarding the Oxford-Cambridge corridor and helping you consider how best to cash in on the exciting opportunities by considering the benefits of promotion and option agreements.

20 Sep 2018, Seminar, London, UK

Environmental regulation and liability have risen up the boardroom agenda over the past decade. Recent changes to environmental sentencing have brought this area of risk even more into focus.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions