The European Code of Ethics for Franchising

The Code, with its description, values & recommended practices, is a tool which aims at forging a community of value-motivated franchise operators in Europe. The Code is at the heart of the commitments of the EFF & its member national Franchise Associations in Europe to shape the present & future of the development of franchising. The Code promotes it as a partnership of independent entrepreneurs who collaborate in a dynamic, emancipating & rewarding route to entrepreneurship.

• The EUROPEAN CODE OF ETHICS FOR FRANCHISING
• The EFF’s GUIDELINES FOR MUTUAL PRECONTRACTUAL DISCLOSURE INFORMATION
• THE NATIONAL EXTENSIONS AND/OR INTERPRETATIONS ("ANNEXES") to the EUROPEAN CODE OF ETHICS FOR FRANCHISING
  • Belgium: FEDERATION BELGE DE LA FRANCHISE/ BELGISCHE FRANCHISE FEDERATIE
  • Britain: BRITISH FRANCHISE ASSOCIATION
  • France: FEDERATION FRANCAISE DE LA FRANCHISE
  • Italy: ASSOCIAZIONE ITALIANA DEL FRANCHISING -ASSOFRANCHISING
  • Greece: GREEK FRANCHISE ASSOCIATION
  • The Netherlands: NETHERLANDS FRANCHISE ASSOCIATION
  • Sweden: SWEDISH FRANCHISE ASSOCIATION

PREAMBLE

1. This preamble sets out the purpose of the European Code of Ethics for Franchising and the principles under which Franchise Associations, Members of the European Franchise Federation, will apply the Code in their countries.
2. The EUROPEAN CODE OF ETHICS FOR FRANCHISING is a practical ensemble of essential provisions for the governance of the relations between a franchisor and each of its franchisees, operating together in the framework of the franchise network. The overarching principles of ethics that underline this set of provisions are good faith & fair dealings, which translate as franchisor-franchisee relations based on fairness, transparency and loyalty each of which contribute to founding confidence in the relationship.
3. The principles of the CODE are applicable at all stages of the franchise relationship: pre-contractual, contractual and post-contractual stages and for all actors in the franchise industry, irrespective of association membership or not.
4. The EUROPEAN CODE OF ETHICS FOR FRANCHISING constitutes the European franchising industry’s self-defined and Self-Regulatory Code of ethical conduct and is designed for the franchise industry as a whole to look to for guidance on franchising generally. It originates within the membership community of the EFF but offers itself as a standard for all franchise stakeholders, present and future.
5. The CODE’s clear and unambiguous principles are not in contradiction with national laws and fundamental rights in the EU. Its principles have the continuing objective of setting up a more efficient framework for franchising.
6. In particular, the CODE is the foundation stone of the action of the EUROPEAN FRANCHISE FEDERATION’s National Franchise Association Members. Their respective membership rules, accreditation as well as disciplinary schemes must comply with the standards set in the CODE. The CODE, in its entirety, is binding for all EFF Members as well as their respective memberships. The CODE is endorsed by all EFF Member Franchise Associations each of which is committed to its promotion, interpretation and implementation in their own country. Each Association is responsible for ensuring that the Code is publicly available, in particular to all those entering the franchise industry.
7. National Franchise Associations which are Members of the EFF have the opportunity to add to the European Code of Ethics a National Extension and/or Interpretation to meet national requirements provided that it does not derogate from or misinterpret the Code (called “annexes” for short).
8. The EFF represents the franchise industry as a whole which, in a multi-stakeholder approach, means the interests of the franchise networks, inclusive of franchisors and franchisees towards public authorities, civil society, and consumers.
9. The EUROPEAN CODE OF ETHICS FOR FRANCHISING was originally written in 1972 by major industry actors in Europe, members of the EFF’s founding associations. It directly reflects the experience of good behaviour of franchisors and franchisees in Europe. It was reviewed in 1992 to reflect the evolution of franchising on the market as well as to meet the development of the EU’s regulatory frame.
10. THE CODE was again updated in 2016 in order to integrate further provisions both new as well as uploaded from the national annexes of the EFF Member associations. These provisions reflect the grass-roots best-practice as well as the maturity of franchisor-franchisee relationships in the EFF’s Member associations from which they are taken. This Code also integrates the recommendations of the European Commission on best-practice in the design of Codes of Self-Regulation. Thus, the EFF Code is a living plan of action. Its updates are ongoing and iterative so as to reflect the constant evolution of franchising in Europe, and in particular the quality of its franchisor-franchisee relations.
11. The EFF believes, and this is attested by its 40-year experience as the single voice for franchising in Europe, that robust Self-Regulation is the best adapted and most flexible mode of regulation for the European franchise industry. It is on this foundation that Franchising has contributed significantly to the promotion of independent entrepreneurship, in particular the development of SME’s and modernised commerce, as well as related employment on the European markets.
12. THE EUROPEAN FRANCHISE FEDERATION (EFF) is a not-for-profit international association constituted in 1972. It is registered in Brussels, Belgium where it has a permanent Secretariat. The Federation’s members are the single accredited national franchise associations from countries that fall under the geo/institutional conditions expressed in the EFF’s Statutes.
13. A defining role of the EFF is to promote the diffusion and application of this CODE of ETHICS for FRANCHISING so as to secure the proper development of ethical franchising in Europe.

1. DEFINITION OF FRANCHISING

Franchising is a system of marketing goods and/or services and/or technology, which is based upon a close and ongoing collaboration between legally and financially separate and independent undertakings, the Franchisor and its individual Franchisees, whereby the Franchisor grants its individual Franchisee the right, and imposes the obligation, to conduct a business in accordance with the Franchisor’s concept.

The right entitles and compels the individual Franchisee, in exchange for a direct or indirect financial consideration, to use the Franchisor’s trade name, and/or trade mark and /or service mark, knowhow, business and technical methods, procedural system, and other industrial and /or intellectual property rights, supported by continuing provision of commercial and technical assistance, within the framework and for the term of a written franchise agreement, concluded between parties for this purpose.

• ”know-how” means a package of non-patented practical information, resulting from experience and testing by the Franchisor, which is secret, substantial and identified;
• ”secret” means that the know-how is not generally known or easily accessible; it is not limited in the narrow sense that each individual component of the know-how should be totally unknown or unobtainable outside the Franchisor’s business;
• ”substantial” means that the know-how is significant and useful to the buyer for the use, sale or resale of the contract goods or services;
• ”identified” means that the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality.

2. GUIDING PRINCIPLES

2.1 The Franchisor is the initiator and long-term guardian, in a market, of a franchise network, composed of the Franchisor and its individual Franchisees.

2.2 The commitments of the Franchisor:

The Franchisor

1. shall have operated a business concept with success in the relevant market, for at least one year and in at least one pilot unit before starting its franchise network in that market;
2. shall be the owner, or have the legal rights to the use of its network’s trade name, trade mark or other distinguishing identification;
3. shall recognize their franchisees as independent entrepreneurs and shall not directly or indirectly subordinate them as employees;
4. shall provide the Individual Franchisee with initial training and continuing commercial and /or technical assistance during the entire life of the agreement;
5. shall grant the right to use the know-how transferred and/or made available to the Franchisee, which know-how it is the franchisor’s responsibility to maintain and develop;
6. shall transfer and/or make available the know-how to the Franchisee through adequate means of information and training and shall monitor and control the proper use of that know-how;
7. shall encourage feedback of information from Franchisees in order to maintain and develop the know-how transferred and/or made available to them;
8. shall, in the pre-contractual, contractual and post-contractual phases of their relationship with Franchisees, seek to prevent any wrongful usage of or, in particular, the transmission of know-how to, competing networks so as to avoid prejudice to the interests of the network;
9. shall invest as appropriate the means, financial and human, to promote his brand and to engage in the research and innovation that will ensure the long-term development and continuity of his concept;
10. shall inform prospective and individual franchisees of his internet commercial and/or sales policy;
11. shall seek to safeguard the interests of the network in the development of its (the Franchisor’s) on-line commercial and/or sales policy.

2.3 The commitments of each Franchisee:

The Franchisee

1. shall accept the obligation to collaborate loyally with the Franchisor in ensuring the success of the network which the franchisee has joined as an informed and fully independent entrepreneur;
2. shall devote its best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network;
3. shall be responsible for the human and financial means that it engages in its franchise business and is responsible as an independent entrepreneur, with regard to third parties, for his acts within the framework of the franchise;
4. shall act loyally with regard to each of the other Franchisees of the network as well as with regard to the network itself;
5. shall supply the Franchisor with verifiable operating data to facilitate the determination of performance and the financial statements necessary for effective management guidance;
6. shall allow the Franchisor to ensure that the quality and image of the concept is properly maintained in the products and services provided by the Franchisee to the customer/consumer;
7. shall recognize his responsibilities as a fully independent entrepreneur with regard to the customer/consumer;
8. shall not disclose to third parties the know-how and other information material to the operation of the franchise provided by the Franchisor, neither during nor after termination of the franchise agreement.

2.4 The ongoing commitments of both parties:

The Parties

1. shall seek to safeguard the image and reputation of the network in the running of their respective businesses;
2. shall exercise good faith and fairness in their dealings with each other. The parties shall give written notice of any contractual breach and, unless inappropriate, grant reasonable time to the other party to remedy default;
3. shall respect the confidentiality of information material to the franchise concept provided by the one to the other;
4. shall resolve complaints, grievances and disputes with good faith and goodwill through fair and reasonable direct communication and negotiation;
5. shall where appropriate and where parties have failed to resolve a dispute through direct negotiation, seek in good faith mediation before litigation and/or arbitration organized or approved by an EFF National Association Member.

3. RECRUITMENT, ADVERTISING AND DISCLOSURE

3.1 Advertising for the recruitment of Individual Franchisees shall be free- of ambiguity and misleading statements.

3.2 Any recruitment, advertising and publicity material, containing direct or indirect references to future possible results, figures or earnings to be expected by Individual Franchisees, shall be objective and shall not be misleading.

3.3 In order to allow prospective Individual Franchisees to enter into any binding document with full knowledge, they shall be given a copy of the present Code of Ethics, or a public access to it, as well as full and accurate written disclosure of all information material to the franchise relationship, within a reasonable time prior to the execution of these binding documents.

3.4 The prospective Franchisee is responsible for carefully analyzing the information material to the franchise relationship, including choosing to take appropriate professional advice, before signing the franchise agreement.

3.5 The prospective Franchisee must be truthful and transparent in the information about his experience, his financial capacities, his training, background and any other information material to the franchise relationship he provides for the purpose of his selection by the Franchisor.

3.6 If a Franchisor imposes a pre-contract on a candidate individual Franchisee, the following principles should be respected:

1. prior to the signing of any pre-contract, the candidate Individual Franchisee should be given written information on its purpose and on any consideration he may be required to pay to the Franchisor to cover the latter’s actual expenses, incurred during and with respect to the pre-contract phase; if the franchise agreement is executed, the said consideration should be reimbursed by the Franchisor or set off against a possible entry fee to be paid by the Individual Franchisee;
2. the pre-contract shall define its term and include a termination clause;
3. the Franchisor can impose non-competition and/or confidentiality clauses to protect its knowhow and identity.

4. SELECTION OF INDIVIDUAL FRANCHISEES

A Franchisor should select and accept as Individual Franchisees only those who, upon reasonable investigation, appear to possess the basic skills, education, personal qualities and financial resources sufficient to carry on the franchised business.

5. THE FRANCHISE AGREEMENT

5.1 The Franchise agreement shall comply with the National law, European community law and this Code of Ethics and any National Extensions thereto.

5.2 The agreement shall protect the Franchisor’s industrial and intellectual property rights so as to secure the common identity, reputation and interests of the franchise network.

5.3 Franchisors shall offer to franchisees all agreements and all contractual arrangements in connection with the franchise relationship, in writing, in the official language of the country the Individual Franchisee is established in or in a language in which the franchisee formally declares itself competent. Signed agreements shall be given immediately to the Individual Franchisee.

5.4 The Franchise agreement shall set forth without ambiguity, the respective rights and obligations of the parties and all other material terms of the relationship.

5.5 The essential minimum terms of the agreement shall include at least the following:

1. the rights granted to the Franchisor
2. the rights granted to the Individual Franchisee
3. the Franchisor’s intellectual property rights on the brands, signs, etc. which should be established for a term at least as long as the term of the franchise agreement
4. the goods and/or services to be provided to the Individual Franchisee
5. the obligations of the Franchisor
6. the obligations of the Individual Franchisee
7. the terms of payment by the Individual Franchisee
8. the duration of the agreement which should be long enough to allow Individual Franchisees to amortize their initial and subsequent investments specific to the franchise
9. the basis, including the notice which both parties must give, for any renewal of the agreement
10. the terms upon which the Individual Franchisee has the right to sell or transfer the franchised business as a going concern and the Franchisor’s possible pre-emption rights in this respect
11. provisions relevant to the use by the Individual Franchisee of the Franchisor’s distinctive signs, trade name, trademark, service mark, store sign, logo or other distinguishing identification
12. the Franchisor’s right to adapt the franchise system to new or changed methods
13. provisions for termination of the agreement
14. provisions for surrendering promptly upon termination of the franchise agreement any tangible and intangible property belonging to the Franchisor or other owner thereof.

6. THE CODE OF ETHICS AND MASTER-FRANCHISE SYSTEMS

This Code of Ethics shall apply to the relationship between the Franchisor and its Individual Franchisees and equally between the Master Franchisee and its Individual Franchisees. It shall not apply to the relationship between the Franchisor and its Master-Franchisees.

The EFF’s GUIDELINES FOR MUTUAL PRECONTRACTUAL DISCLOSURE of INFORMATION between franchisor & candidate franchisee

These Guidelines substantiate articles 3.3, 3.4 & 3.5 of the Code of Ethics. They were adopted by the EFF’s General Assembly on June 13, 2019.

1. A franchisor and a future (candidate) franchisee must be in a position to respectively commit themselves in the knowledge of facts in order to fully assume the consequences of their respective decisions to invest in and to engage themselves in a franchise agreement.
2. The aim of these Guidelines is to bring detail to the application of Articles 3.3, 3.4 (franchisor disclosure) and 3.5 (franchisee disclosure) of the European Code of Ethics for Franchising.
3. These Guidelines detail the information and data that must be contained in the document that both parties must give to one another before the signing of the franchise contract, all of which contribute to the correct understanding of the terms and implications of the agreement.
4. This pre-contractual information and data must be updated if there are any material changes to each individual agreement.
5. This information must be provided by means of an easily accessible (/downloadable) and durable (/hard copy) support.
6. The franchise agreement must contain, at minimum:
   • The contractual dispositions described in Article 5.5 of the European Code,
   • For the franchisor: the information and data relative to the franchise agreement,
   • For the franchisee: the information and data relative to the candidate franchisee.

This set of compulsory pre-contractual information must be exchanged within a reasonable delay of at least 15 days, or at least as per the overriding national law, before the signing of the contract.

The information and data that must be disclosed by each party is as follows:

For the franchisor:

1. The description of his activities as well as a relevant history of his system and franchise concept.
2. Information about how the knowhow will be transferred to the franchisee.
3. A market overview, including history as well as the current state of the market in which the activities will be carried out.
4. The intellectual property rights whose use is conceded in the agreement.
5. A description of the franchisor’s experience in the running of the business concept.
6. Information about communication and support structures in place with the franchisees of the network.
7. Information about how brand identity and standards are protected.
8. Information about where and how to find a current list of franchise franchise locations or territories of the network and their business contact information.
9. The number of franchise agreements signed in the last 3 years as well as ended over the last three years (for the country). In the relevant territory, a full franchise history will be given.
10. A list of financial obligations that the franchisee may expect to pay at start-up over and above the franchise fees, a list of future costs obligated by the franchise agreement that can be foreseen at the point of signing, as well as, explain where the financial consequences involved at the end of the contract may be found.
11. Make available key financial figures of the franchisor and/or, where available, the annual published accounts for the last 2 financial years.
12. Declare how the franchisor draws income from its business related to the franchise (for example, supplier rebates, marketing fees, etc.).
13. The list of means of selling the same products or services under the brand, commercial name or trademark which are the object of the franchise contract within the customer-catchment area or exclusive territory allocated to the candidate franchisee.
14. Whether or not the franchisee is granted an exclusive territory.
15. The non-compete and/or non-affiliation obligations imposed during and after the contract.

For the franchisee:

1. Identity,
2. Training, education,
3.  A description of his professional experience/career,
4. Financial capabilities and origin of the funds,
5. Motivations,
6. Full disclosure of bankruptcies, liquidations and/or court judgements,
7. Previous experience as an entrepreneur, including with another franchise business.

For both parties:

1. Both parties must also give written information of any personal circumstance material to the franchise agreement.
2. Neither the franchisor nor the franchisee may renounce this obligation of exchange of information.
3. All of this compulsory information must conform to the national laws, European legislation as well as the European Code of Ethics for Franchising, including, as the case may be per association, the national annexes to the European Code.

THE NATIONAL EXTENSIONS & INTERPRETATIONS (“Annexes”) TO THE CODE

As explained under Preamble point 7 of the CODE, National Franchise Associations which are Members of the EFF have the opportunity to develop their own National Extensions and/or Interpretations (“annexes”) as a complement to the core text of the EFF Code. These annexes are devised to meet more specific requirements experienced in a particular country. These may come and complement, as annexes, the European Code of Ethics, provided that the Extension or Interpretation does not derogate from or misinterpret the spirit or text of the Code itself.

These national annexes reflect the evolution and maturity reached by a franchise community in a particular country. They reflect the lessons learnt from the experience franchisor-franchisee relations and which are elevated to become a standard of good franchise practice in a national that community.

It is a bonus for the EUROPEAN CODE OF ETHICS itself to be complemented with such annexes. These national annexes constitute the ferment from which the EFF, at intervals, will select some of the provisions from national annexes to integrate them into the core text of the CODE so that they become common reference for the whole franchise industry across Europe.

EUROPEAN CODE of ETHICS for FRANCHISING: the FEDERATION BELGE DE LA FRANCHISE - BELGISCHE FRANCHISE FEDERATIE national annex

1. The franchise concept is an original combination of three (3) essential elements:
   • the property of or the right to use the signs that rally the customer. These include the brand name, trademark, trade name, corporate, business or commercial name, signs, symbols, logos;
   • the use of commercial experience, expertise, know-how,
   • a selection of products, services and/or technology, patented/registered or not, which the franchisor has conceived, adapted, approved or bought.
2. Secret, meaning that the know-how as a whole, or in the precise assembly or configuration of its components, is not generally known or easily accessible. This meaning is not limited to the strict or literal sense that each individual component of the know-how needs to be totally unknown or impossible to access outside of the relation with the franchisor.
3. Substantial, meaning the fact that the know-how must include information indispensable for the sale of products or the provision of a service to the final customer including information about the presentation of products for sale, the transformation of products in relation to the provision of services, the relations with customers as well as about the administrative and financial management. The know-how must be useful to the franchisee in the sense that, on signing the agreement, it is likely to enhance his competitive position and in particular, to improve his results and/or help him enter a new market.
4. Identified, meaning that the know-how must be described in a manner sufficiently complete to be able to verify that it meets the conditions of “secret” and “substantial”. The know-how may be described either in the franchise agreement, in a separate document or in any other appropriate form or support.
5. The franchise network is composed of the franchisor and the franchisees.
   The franchise network, by its organisation and its development, contributes to enhancing the production and/or distribution of goods and/or services or contributes to promoting economic and technical progress whilst at the same time ensuring that the end-customer benefits from a fair share of the resulting profit. The franchisor must implement a structured and permanent dialogue between his corporate organisation and the franchisees. The franchisee must engage in the life of the network and contribute to its general interest. The franchisor’s brand/trade name, symbol of the network’s identity and reputation, constitutes the guarantee of the quality of service that is offered to the customer.
   This guarantee is assured by the transmission of know-how as well as the controls on the respect of this know-how, as well as in the offer of a homogenous range of products, services and/or technologies. The franchisor will ensure that each franchisee clearly publicizes to the customer, by appropriate and visible signs, his status as a legally independent entrepreneur.
6. The brand image:
   the franchisor guarantees with regards the franchisee the rights to use all of the brand’s customer-rallying signs which he puts at the disposal of the franchisee. The franchisor must also guarantee the validity of the rights he has on the brand(s)/trade name(s) that have been conferred in whatever capacity to the franchisee. The franchisor maintains and develops the image of the brand. The franchisor must control that the franchisee is using the brand/trade name and all other commercial signs that are put contractually at his disposition in accordance with the rules and instructions for their proper use. On termination of the contract, the franchisor will control that the ex-franchisee is no longer using the brand/trade names of the concept. If the contract, for the use of the brand, contains a clause of territorial exclusivity, the franchisor must specify its conditions, including its object and scope. The franchisor mustmake sure, by all means, that the selection of products and/or services and/or technologies offered to the customer conform properly to the image of the brand. As the case may be, this may be assured by a clause of exclusive supply, in particular if the products carry the brand/trade name of the franchisor.
7. In this respect, the contract may foresee an in-term or post-term non-compete clause whose object, term and scope are defined so as to take into account the interests of the network.
8. The contractual relations:
   The franchisor and the franchisees are fully aware that they are collaborating in a system in which their interests are linked for the short and long term. The flexibility of the franchise system and the sense of responsibility of each party contribute to the success of franchising. The relations between the parties must be defined so as to make allowance for the necessary evolutions needed to improve the functioning of the network as well as the satisfaction of the customer.
   The franchisor defines the terms of the written contract which details in full and in precise terms the rights, obligations, and responsibilities of each party. The contract must reflect the strategy of the franchise network as well as indicate the means necessary for the realisation of the franchise concept.
   The contract will not impose restrictions on either party which are not necessary to the attainment of the objectives. The balance of the contract is to be appreciated globally in light of the general interest of the franchise network. The general contractual framework allows for a permanent dialogue and favours conciliatory solutions.
9. As the party responsible for the identity and the reputation of the network, the franchisor strives, proportionally to his means and the objectives sought:
   • to define norms of quality as well as their means of control, direct or indirect, of the franchisee with regards to the customer,
   • to keep the franchisee informed of his responsibilities, specific to the franchise, with regards the customer, including his status as an independent entrepreneur. The franchisor will also inform the franchisee of the opportunity he has of accessing the public Service of Consumer Mediation whose missions are defined in Book XVI of the Code of Economic Law et which are further developed in the Royal Decree of February 16th, 2015 and which is available at the following link: contact@mediationconsommateur.be,
   • in case the activity of the franchise network requires advance payments by the customer, partial or total, the franchisor must draw the franchisee’s attention to the necessity of having a guarantee system with regards the customer, either by being personally solvable or by taking up an insurance, a bank guarantee or any other appropriate means.
   The franchisor will respect the rules about precontractual disclosure as they are defined in articles X.26 to 36 of Title 2 of Book X of the Code of Economic Law and will take into account, in the execution of the contract, the Advice notices of the Arbitration Committee set up by article 34 of the Code of Economic Law and available at the following link on the site of the Federal Ministry of the Economy: economie.fgov.be.
10. As the case may be, the franchisor and franchisee inform one another reciprocally and with sufficient notice of either party’s intention not to renew the present contract as it reaches its term, or of not wishing to sign a new contract.
11. The franchise contract should specify the conditions which allow the franchisor to recover or retrieve certain goods or furnishings specific to the franchise once the contract ends. By doing this, the franchisor is not seeking to penalise the ex-franchisee but to protect the identity and reputation of the franchise network.
12. The franchisor must not implement unjustified practices aimed at restricting the franchisee’s freedom to leave the network at the end of the franchise contract.

EUROPEAN CODE of ETHICS for FRANCHISING: the bfa’s national annex

This Extension and Interpretation forms an integral part of the Code of Ethical Conduct adopted by the British Franchise Association and to which its members adhere.

APPLICATION

1. This Code of Ethical Conduct forms part of the membership agreement between the British Franchise Association and its member companies. It does not form any part of the contractual agreement between franchisor and franchisee unless expressly stated to do so by the franchisor. Neither should anything in this Code be construed as limiting a franchisor’s right to sell or assign its interest in a franchised business.

INDEPENDANCE

2. The Code states under clause 2.2(iii) that the franchisor must ensure that it recognises its franchisees as independent entrepreneurs and not directly or indirectly subordinate them as employees. Franchisors should seek to ensure that they treat franchisees as independent businesses and consider to what extent the individual genuinely running their own business, at their own discretion and their own risk and what rights they have – workers have certain significant rights under UK employment legislation, whereas self-employed individuals do not.

DISCLOSURE

3. The objectivity of recruitment literature (Clause 3.2) refers specifically to publicly available material. It is recognised that in discussing individual business projections with franchisees, franchisors are invariable involved in making assumptions which can only be tested by the passage of time.

CONFIDENTIALITY

4. For the generality of this Code of Ethical Conduct, ‘know-how’ is taken as being as defined in the European Commission Regulation (EU) No. 330/20102 to Article 101(1) of the Treaty on the Functioning of the European Union. However, for the purposes of Article 3.6 of the European Code of Ethics it is accepted that franchisors may impose non-competition and secrecy clauses to protect other information and systems where they may be reasonably regarded as material to the operation of the franchise.

CONTRACT TERM

5. In suggesting in Article 5.5 of the European Code of Ethics that the minimum term for a franchise contract should be the period necessary to amortize those of a franchisee’s initial and subsequent investment which are specific to the franchise, it is recognised:

1. that for a minority of the largest franchise opportunities amortizing initial investments may not be a primary objective for the franchisee. In such cases the objective should be to adopt a contract period which reasonably balances the interests of the parties to the contract.
2. that this section could be subject to national laws concerning the restraint of trade and may need to be met through renewal clauses.

MASTER FRANCHISEES

6. Clause 5.5(iii) of the new Code of Ethics states that the Franchisor’s intellectual property rights on the brands, signs etc. should be established for a term at least as long as the term of the franchise agreement. With regard to Master franchisees, in interpreting this clause the bfa takes in to account the Master franchisee’s renewal rights, thus ensuring that a Master Franchisee has a potentially long enough term left on its master franchise agreement to grant unit franchises. However in the spirit of the Code of Ethics the bfa also makes the assumption that if the master franchisee’s contract were to cease, in order to ensure that the grant of the intellectual property rights under the franchise agreement are not prejudiced the responsibility for the continuing trading of the unit franchisees should be preserved either by transfer to the Franchisor or to its nominee.

CONTRACT RENEWAL

7. The basis for contract renewal should take into account the length of the original term, the extent to which the contract empowers the franchisor to require investments from the franchisee for refurbishment or renovation, and the extent to which the franchisor may vary the terms of a contract on renewal. The overriding objective is to ensure that the franchisee has the opportunity to recover their franchise specific initial and subsequent investments and to exploit the franchised business for as long as the contract persists.

ADOPTION

This Code of Ethical Conduct comprising this Extension and Interpretation and the European Code of Ethics for Franchising was adopted by the British Franchise Association, replacing its previous Code of Ethics on 8th December 2016, subject to a transitional period for full compliance ending 31st December 2017. During the transitional period members of the Association are nonetheless required to comply at least with the Code of Ethics previously in force.

EUROPEAN CODE of ETHICS for FRANCHISING: the FFF’s national annex

1. The franchise concept is an original combination of three (3) essential elements:
   • the property of or the right to use the signs that rally the customer. These include the brand name, trademark, trade name, corporate, business or commercial name, signs, symbols, logos;
   • the use of commercial experience, expertise, know-how,
   • a selection of products, services and/or technology, patented/registered or not, which the franchisor has conceived, adapted, approved or bought.
2. Secret, meaning that the know-how as a whole, or in the precise assembly or configuration of its components, is not generally known or easily accessible. This meaning is not limited to the strict or literal sense that each individual component of the know-how needs to be totally unknown or impossible to access outside of the relation with the franchisor.
3. Substantial, meaning the fact that the know-how must include information indispensable for the sale of products or the provision of a service to the final customer including information about the presentation of products for sale, the transformation of products in relation to the provision of services, the relations with customers as well as about the administrative and financial management. The know-how must be useful to the franchisee in the sense that, on signing the agreement, it is likely to enhance his competitive position and in particular, to improve his results and/or help him enter a new market.
4. Identified, meaning that the know-how must be described in a manner sufficiently complete to be able to verify that it meets the conditions of “secret” and “substantial”. The know-how may be described either in the franchise agreement, in a separate document or in any other appropriate form or support.
5. The franchise network is composed of the franchisor and the franchisees.
   The franchise network, by its organisation and its development, contributes to enhancing the production and/or distribution of goods and/or services or contributes to promoting economic and technical progress whilst at the same time ensuring that the end-customer benefits from a fair share of the resulting profit. The franchisor must implement a structured and permanent dialogue between his corporate organisation and the franchisees. The franchisee must engage in the life of the network and contribute to its general interest. The franchisor’s brand/trade name, symbol of the network’s identity and reputation, constitutes the guarantee of the quality of service that is offered to the customer. This guarantee is assured by the transmission of know-how as well as the controls on the respect of this know-how, as well as in the offer of a homogenous range of products, services and/or technologies. The franchisor will ensure that each franchisee clearly publicizes to the customer, by appropriate and visible signs, his status as a legally independent entrepreneur.
6. The brand image:
   the franchisor guarantees with regards the franchisee the rights to use all of the brand’s customer-rallying signs which he puts at the disposal of the franchisee. The franchisor must also guarantee the validity of the rights he has on the brand(s)/trade name(s) that have been conferred in whatever capacity to the franchisee. The franchisor maintains and develops the image of the brand. The franchisor must control that the franchisee is using the brand/trade name and all other commercial signs that are put contractually at his disposition in accordance with the rules and instructions for their proper use. On termination of the contract, the franchisor will control that the ex-franchisee is no longer using the brand/trade names of the concept. If the contract, for the use of the brand, contains a clause of territorial exclusivity, the franchisor must specify its conditions, including its object and scope. The franchisor mustmake sure, by all means, that the selection of products and/or services and/or technologies offered to the customer conform properly to the image of the brand. As the case may be, this may be assured by a clause of exclusive supply, in particular if the products carry the brand/trade name of the franchisor.
7. In this respect, the contract may foresee an in-term or post-term non-compete clause whose object, term and scope are defined so as to take into account the interests of the network.
8. The contractual relations:
   The franchisor and the franchisees are fully aware that they are collaborating in a system in which their interests are linked for the short and long term. The flexibility of the franchise system and the sense of responsibility of each party contribute to the success of franchising. The relations between the parties must be defined so as to make allowance for the necessary evolutions needed to improve the functioning of the network as well as the satisfaction of the customer.
   The franchisor defines the terms of the written contract which details in full and in precise terms the rights, obligations, and responsibilities of each party. The contract must reflect the strategy of the franchise network as well as indicate the means necessary for the realisation of the franchise concept.
   The contract will not impose restrictions on either party which are not necessary to the attainment of the objectives. The balance of the contract is to be appreciated globally in light of the general interest of the franchise network. The general contractual framework allows for a permanent dialogue and favours conciliatory solutions.
9. As the party responsible for the identity and the reputation of the network, the franchisor strives, proportionally to his means and the objectives sought:
   • to define norms of quality as well as their means of control, direct or indirect, of the franchisee with regards to the customer,
   • to keep the franchisee informed of his responsibilities, specific to the franchise, with regards the customer, including his status as an independent entrepreneur. The franchisor will also inform the franchisee of the opportunity he has of accessing the services of the “Comité de Médiation Franchise-Consommateurs” of the French Franchise Federation.
   • in case the franchise sales require advance payments by the customer, partial or total, the franchisor must draw the franchisee’s attention to the franchisee’s need of having a guarantee system with regards the customer, either by being personally solvable or by taking up an insurance, a bank guarantee or by any other appropriate means.
10. As the case may be, the franchisor and franchisee inform one another reciprocally and with sufficient notice of either party’s intention not to renew the present contract as it reaches its term, or of not wishing to sign a new contract.
11. The franchise contract should specify the conditions which allow the franchisor to recover or retrieve certain goods or furnishings specific to the franchise once the contract ends. By doing this, the franchisor is not seeking to penalise the ex-franchisee but to protect the identity and reputation of the franchise network.
12. The franchisor must not implement unjustified practices aimed at restricting the franchisee’s freedom to leave the network at the end of the franchise contract.
13. As an entrepreneur, responsible as well as aware of the major current societal issues, the franchisor commits to implement a policy of Corporate Social Responsibility (CSR) to enhance the development of its network.

EUROPEAN CODE of ETHICS for FRANCHISING: Assofranchising’s national annex

INTRODUCTION

This Code of Ethics must be observed by all Members of the Associazione Italiana del Franchising. Its aim is to oblige Franchisees and Members of Assofranchising to adopt rules of conduct founded on the principles of propriety and professionalism.

Membership as an Assofranchising Franchisor thereby entails liability to these additional rules, which aim to encourage the establishment and performance of a proper Franchising relationship. This Code of Ethics integrates but - where there is a conflict - does not replace the provisions of law and self-regulation which are in force nationally and in Europe, which Members must therefore continue to observe scrupulously.

In the event that a conflict arises between this Code of Ethics and a provision of binding law, it will be Assofranchising’s responsibility to modify the Code of Ethics as a result. In the meantime, Members shall automatically be released from observation of any of its rules which might conflict with such a regulation. This Code of Ethics presupposes a Member’s strict observance of the ethical and self-regulatory rules prepared by the European Franchise Federation. The Code of Ethics must be coordinated with the latter to prevent any conflict arising, both in its interpretation and application. This Code of Ethics shall be periodically reviewed and updated, to ensure it is in line with the new regulations which must be adopted, both on the basis of legislation and voluntarily, on an Italian and European level.

ART. 1 – MEMBERS’ OBLIGATIONS

Members are obliged to scrupulously observe all Italian laws regarding Franchising that is directly or indirectly applicable, in particular: law n. 129 of 6 May 2004 and Ministerial Decree n. 204 of 2 September 2005; the law contained in the Civil Code; the law in force concerning industrial and intellectual property rights, with specific reference to Legislative Decree n. 30 of 10 February 2005 (the so-called Code on industrial property); the law relating to the protection of competition with specific reference to Law n. 287 of 10 October 1990, and Legislative Decree n. 196 of 30 June 2003 (Code concerning personal data protection).

In addition, Members are obliged to scrupulously respect the European regulations regarding Franchising which are directly or indirectly applicable, both on a regulatory and voluntary basis, with particular reference to EU Regulation n. 330/2010, and the European Code of Ethics prepared by the European Franchise Federation. Finally, Members must scrupulously observe all the regulations contained in this Code of Ethics and in the Statute of Assofranchising.

Members’ failure to observe the abovementioned obligations shall be punished in accordance with the provisions contained in Art. 11 below.

ART. 2 – MINIMUM PERIOD OF EXPERIENCE

Before building its own Franchising network, the Franchisor must have successfully tested its own formula on the market for a minimum period of 1 year, with at least one pilot unit where applicable.

ART. 3 – TRADEMARKS

The Franchisor must be the owner of a right for exclusive use of trademarks used in the context of the Franchising network. The registration, or in any event the filing, of such trademarks must occur in accordance with the regulations in force. The limits of the registration or filing of trademarks - or of the licence (including its term and extent) granted to the Franchisor by a third party which has ownership of the trademarks themselves - must be specifically indicated in the Franchising contract. In the absence of registration or filing of the trademarks used, the Franchisor shall be obliged to provide the Franchisee with documentation proving concrete use of the trademarks.

ART. 4 - PROVISIONAL FRANCHISING CONTRACT

The use of a provisional franchising contract must be limited to cases where it is absolutely essential in allowing the Franchisor to properly pursue the development objectives of the franchising system. Such a contract must not however, under any circumstances, replace or add to the definitive franchising contract, either entirely or in part, and must clearly indicate the timescales and procedures for the set-up of the relationship and subscription to the definitive contract.

ART. 5 – THE FRANCHISOR’S PRELIMINARY DUTIES FOR PROVIDING INFORMATION TO THE FRANCHISEE

The Franchisor must provide the Franchisee with the following documentation, at least 30 days before the signing of the Franchising contract:

1. a complete copy of the aforesaid Franchising contract, containing all the requirements required by law 129/2004 together with all related attachments, with the exception of those which are subject to objectives and specific confidentiality requirements, which must in any case be mentioned in the contract;
2. at the Franchisee’s request, a copy of financial statements for the last three years, or, in any case, financial statements running from the date that its activity began if this occurred less than three years ago;
3. a list of the Franchisees operating within the Franchising system, complete with addresses and telephone numbers or other contact details (fax, e-mail, etc.);
4. a document containing an indication of the change year by year in the number of Franchisees, either in the last three years or from the date its activity began if this occurred less than three years ago;
5. a document containing a summary description of any judicial proceedings initiated against it which might have been concluded in the last three years and which relate to the Franchising system in question, whether such proceedings were initiated by Franchisees or private third parties or public authorities;
6. at the Franchisee’s request, an assumed profit and loss account based, if possible, on the average experiences of Franchisees in a similar position;
7. a copy of this Code of Ethics and its annexes;
8. a copy of the European Code of Ethics.

ART. 6 – FRANCHISING CONTRACT

At the moment that the request for admission to Assofranchising is presented, the Franchisor must deliver a copy of the Franchising contract to Assofranchising, accompanied by the relevant attachments, with the exception of those which are subject to objectives and specific confidentiality requirements, which must in any event be mentioned in all cases.

In addition, the Franchisor must deliver to Assofranchising all possible subsequent modified versions of its franchising contract in a timely fashion, so that Assofranchising always has a copy of the contract in use at any given moment. The Franchising contract must be drawn up in writing, in a clear and exhaustive manner, and may lay down the Franchisee’s obligation to adhere to the rules contained in the European Code of Ethics.

ART. 7 - TERM OF THE CONTRACT

The Franchising contract can have a fixed or indeterminate term. The Franchisee must however be guaranteed a minimum term to allow for depreciation of the investment made and this must, in any event, be no less than three years. This does not prejudice the scenario of early termination of the contract due to non-fulfilment of contractual obligations by one of the parties. Nevertheless, the permanence of the contract can be dependent on the Franchisee’s attainment of minimum annual results, for example in terms of minimum levels of purchases or sales. Such minimum levels must be reasonable and based on previous experiences of the Franchising system, but adapted to the case in question, and must also be the result of assessments agreed between the parties.

ART. 8 – TRAINING AND KNOW-HOW

The type, extent and period of assistance and training provided by the Franchisor to the Franchisee must be clearly indicated in the Franchising contract. This data can be contained in an attachment which may be periodically updated. In addition, the know-how provided by the Franchisor to the Franchisee must be clearly indicated.

ART. 9 - EXCLUSIVITY

The franchising contract must indicate the scope of possible territorial exclusivity in relation to other franchisees, as well as with regard to distribution channels and sales units directly managed by the franchisor.

ART. 10 – DISSOLUTION OF THE CONTRACT

The Franchising contract must clearly indicate the possible scenarios for its dissolution. Any automatic termination of the contract due to non-fulfilment by one of the parties must be limited to non-fulfilment of clauses which are important for the proper set-up and management of the Franchising system. For cases where contractual obligations of minor importance are violated, a formal notice procedure must be set in motion for the party which committed the violation to provide a way for it to rectify the breach. The contract must in the end, expressly indicate the terms and conditions for possible renewal and possible transfer of the contract, as well as contain specific provisions relating to the obligations of the parties after its transfer, for any reason that may have arisen, in particular regarding transfer of the Franchisee’s use of the Franchisor’s distinctive signs.

ART. 11 – PENALTIES

The Associazione Italiana del Franchising (“Assofranchising”) shall monitor the proper and complete observance by its own Members of the regulations contained in this Code of Ethics, as well as regulations which have legal or self-regulatory effect and are applicable in Franchising relationships both within Italy and Europe. In the event of any violation of the abovementioned regulations, Assofranchising may, against Members which are liable, enforce the penalties foreseen by art. 14 of the Association’s Statute, according to the procedure indicated therein. Adequate disclosure of the penalties adopted shall be given to Members.

EUROPEAN CODE of ETHICS for FRANCHISING: the GFA’s national annex

This Extension and Interpretation forms an integral part of the Code of Ethics for Franchising adopted by the Franchise Association of Greece and to which its members adhere.

1. APPLICATION

This Code of Ethics for Franchising forms part of the membership written agreement between the Franchise Association of Greece and its member companies. Any violation of this Code of Ethics for Franchising by any of the members of the Franchise Association of Greece shall be deemed as breach of such member’s membership agreement with the Franchise Association of Greece examined by its Disciplinary Committee for any relevant consequence. It does not form any part of the contractual agreement between Franchisor and Franchisee unless expressly stated to do so by the Franchisor. Neither should anything in this Code be construed as quitting a Franchisor’s right to sell or assign its interest in a franchised business.

2. INTELLECTUAL PROPERTY ISSUES

No member of the Franchise Association of Greece shall imitate the trademark, system, tradename, corporate identity, slogan or other mark of identification of another Franchisor in any manner or form that would have the tendency or capacity to mislead or deceive.

3. DISCLOSURE

The objectivity of recruitment literature (Clause 3.2.) refers specifically to publicly available material,
namely to:

• the corporate status of the Franchisor and/or the Master Franchisee (where applicable) including but not limited to the company purpose, registered address, the identity and relevant experience of the system key management personnel of the Franchisor and/or the Master Franchisee (where applicable),
• financial information of the Franchisor and/or the master Franchisee (where applicable),
• business history of the Franchisor and/or the Master Franchisee (where applicable),
• a description of the franchised business,
• an estimate of the total costs associated with establishing a franchised business,
• a general description of the principal characteristics of the know –how,
• the provision of technical support by the Franchisor and/or the Master Franchisee (where applicable) to the Franchisee,
• names and addresses of the franchise network (with special reference to the existing franchised businesses in Greece in the case of a Master Franchisee),
• the number of Franchisees whose franchise agreement have been terminated over the previous two (2) years and the reasons for such termination,
• information relating to all licenses required by law for the establishment and operation of a franchised business,
• the essential elements of the franchise agreement such as rights and obligations of both parties, the duration of the agreement, conditions of renewal or termination, exclusivity clauses etc,
• information on the master franchise agreement with the exception of the financial arrangements between Franchisor and Master Franchisee.

It is recognized that in discussing individual business projections with Franchisees, Franchisors are invariably involved in making assumptions which can only be tested by the passage of time.

4.CONFIDENTIALITY

For the generality of this Code of Ethics for Franchising “know-how” is taken as being as defined in the European Block Exemption to Article 85 of the Treaty of Rome. However, for the purposes of Article 3.4. of the European Code of Ethics it is accepted that Franchisors may impose non-competition and secrecy clauses to protect other information and systems where they may be reasonably regarded as material to the operation of the franchise.

5. CONTRACT LANGUAGE

Franchisors should seek to ensure that they offer to Franchisees contracts in a language in which the Franchisee is competent. It is recommended that Franchisors and Franchisees use the original franchise terminology adopted by the Franchise Association of Greece.

EUROPEAN CODE of ETHICS for FRANCHISING: the NFV’s national annex

Article 3.3 of the European Code of Ethics for Franchising requires the disclosure to the prospective franchisee of information and documentation relevant to the franchise offer. These will include:

1. Information about the franchisor’s franchise company and its financial situation/position. (*Ad 1.: A Balance sheet, audited & filed at the Chamber of Commerce is sufficient);
2. the persons involved with the franchisor’s company (*Ad 2. This refers to shareholders and staff, not employees);
3. A description of the concept, including facts about a pilot unit, if any;
4. A list of the network’s franchisees, address of the outlet, telephone number and e-mail address;
5. Financial estimates or forecasts, if available;
6. The franchise agreement;
7. Bank referents (* Ad 3. “bankreferenties” means providing the identity of the bank at which the franchisor has its main company account. The bank may also provide the franchisee with a written statement confirming the franchisor as a bank customer without this being a certificate of good repute);
8. Information concerning the franchisor’s eventual membership to a professional association such as the NFV, the Netherlands Franchise Association;
9. A statement from the franchisor indicating if the exclusive territory allocated was previously allocated to a franchisee and the reason why this agreement was terminated;
10. Information about the franchisors other distribution channels of products and/or services as well as about its e-commerce policy. (*Ad 4. “other distribution channels” is important to specify, in particular, if the franchisor also operates its own e-commerce business channel).

EUROPEAN CODE of ETHICS for FRANCHISING: the SF’s national annex

The Svensk Franchise annual general meeting of 24 march 2018 established the following national extensions to the The European Code of Ethics for Franchising (“the Code”) is an ensemble of essential provisions for the governance of the relations between a franchisor and its franchisees, operating together in the framework of a franchise network. Svensk Franchise has established that the latest revision of the Code (published 6 December 2016), in its translated version, shall apply to the organisation’s activities in Sweden. The Code is posted on the Svensk Franchise website.

Svensk Franchise, which is a member of the EFF, has an opportunity to make national extensions to and/or interpretations of the Code, provided that the extensions or interpretations comply with the provisions and do not lead to misinterpretation of the Code.

At the 2018 AGM, the Board of Directors of Svensk Franchise established the following national extensions:

1. The definition of franchising states that franchising is based on “collaboration between legally and financially separate and independent undertakings”. In Sweden there are various franchising concepts where the franchisee is a part-owner of the franchisor. There are also other franchising concepts in which the franchisor offers help with financing to franchisees (such as the 91-9-model). Svensk Franchise’s interpretation is that some financial dependence between the franchisor and franchisee does not disqualify a franchising concept from being deemed a valid franchising operation.
2. The definition of franchising also states that “the right entitles and compels the individual Franchisee, in exchange for a direct or indirect financial consideration”. In Sweden there are franchising concepts whereby the franchisee does not provide direct or indirect financial consideration for the right to use the business concept, e.g. social franchising. Svensk Franchise’s interpretation is that the absence of direct or indirect financial compensation does not disqualify a franchising concept from being deemed a valid franchising operation.
3. The Guiding Principles, Section 2.2 (i), state that the franchisor should have been active “in the relevant market”. Svensk Franchise’s interpretation is that the word “market” refers to the product or service market to which the franchising concept relates, and not to the geographical market.

Published 2020 by The European Franchise Federation