::this post ID is 15678::::in categories of ..Legal Corner..::

The franchisor’s playbook

For restaurant chains, the manual may also outline food preparation procedures.

Optimizing operations
Franchisors can optimize the use of their operations manual by developing a business culture where franchisees are not afraid to make mistakes. This may sound counterintuitive, given the success of the franchisor’s brand is tied in with the franchisee’s faithful and true compliance with carefully crafted policies and procedures—but on a fundamental level, a successful franchise system requires the co-operation and dedication of both franchisor and franchisees. This kind of culture can begin with an operations manual that encourages open discussion between these parties.

The franchisee should be well-aware of his/her obligations under the franchise agreement, including those set out in the operations manual. Further, he/she should be aware of the real and significant consequences that could result from his/her failure to comply, including termination of the agreement.

That said, by creating a franchise system culture that encourages franchisees to communicate about any difficulties they encounter in meeting brand standards at an operational level, the franchisor will be able to (a) resolve problems earlier and (b) optimize the manual by updating it. Across the board, franchisors would agree identifying and preventing minor infractions is far preferable to dealing with a severely non-compliant franchisee.

The missing manual
A prospective franchisee who is already well-aware of the benefits of a carefully drafted operations manual might flip through the franchisor’s disclosure document for the purpose of reviewing the manual’s table of contents—only to find nothing is there and, thus, to realize the franchisor does not have an operations manual at all. The question is, should this be considered a red flag?

When most people talk about franchises, they are commonly picturing big chains, such as mainstream quick-service restaurant (QSR) brands, but in reality, franchises come in all shapes, sizes, forms and functions. And with this in mind, the lack of a complete and comprehensive operations manual is not necessarily a red flag.

The issue is not so much the non-existence of the manual, but rather why the franchisor has not developed one. This question relates to the nature of the particular franchise system in question, which may not require an operations manual for any of the following reasons:

  • The main elements of the system have all been set out in the franchise agreement.
  • The technical information required to sell or distribute the authorized products is provided by a manufacturer that is different than the franchisor.
  • The crux of the franchise system is product-focused, rather than service-focused, such that the franchisor has less of a vested interest in the day-to-day operations of the business.
  • Information about brand standards is communicated to franchisees in a manner that does not lend itself to a handbook of policies and procedures.

It is worth keeping in mind there is no legal requirement in Canada for a franchisor to offer an operations manual to its franchisees. In fact, there are only two provinces (i.e. British Columbia and Manitoba) in which the franchisor must include a statement in its disclosure document if no such manual will be provided. As such, some franchisors simply opt out of compiling an operations manual, which is a completely legal avenue for them to take.

In practice, most franchisors do provide some form of operations manual, as they find it is a useful tool for their systems. Any business owner who is considering franchising his/her concept in the first place should consider whether or not the system would benefit in this way. And any prospective franchisee considering buying into a system that has no operational manual should discover and understand why the franchisor has made that choice.

Assessing the playbook
Finally, when assessing the operations manual from either the franchisor’s or the franchisee’s perspective, it is important to ensure the following:

  • The franchise agreement and the brand standards (whether or not they are expressed within the operations manual) are internally consistent.
  • The agreement and the manual do not conflict with each other.
  • The wording of the operations manual does not expose either franchisee or franchisor to unnecessary or inadvertent liability.
  • The manual, when combined with the franchise agreement, provides a clear and helpful playbook for both parties to move forward successfully with the franchise opportunity.

Both franchisors and franchisees have a vested interest in the success of their business. The operations manual can be an essential tool for achieving such success.

Cassandra Da Re is a franchise lawyer specializing in corporate law and commercial leasing law at Dale & Lessmann LLP in Toronto. For more information, contact her via e-mail at cdare@dalelessmann.com.

Time to Review

  1. Which provinces require franchisors to address operations manuals in their disclosure documents?
  2. How might a franchisor implement changes to its operations manual over time?
  3. Why might a franchise system not need an operations manual?
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