Think before you speak
Manzoor Ishani is a senior consultant solicitor with Sherrards (Solicitors), a commercial practice advising franchisors and franchisees in the UK and internationally. He has specialised in franchising for more than 30 years and is a former member of the legal committee of the British Franchise Association.
Franchisors are passionate about the need to protect their reputations particularly those facing increased competition. Provisions in franchise agreements – usually referred to as non-disclosure clauses – have been commonplace for some time. These clauses prohibit a franchisee from disclosing to third parties (other than to professional advisors) the contents of their franchise agreements, details about their franchised businesses, the network, their franchisor and the method of operation of a particular franchise. The reasons for such prohibitions are obvious. Franchisors expend a lot of resources in establishing the wherewithal to franchise so it is not surprising that they seek to guard those matters that they perceive to be confidential to them. Included in this, of course, is the franchise agreement.
Having said that, it does depend on the franchisor. Some franchisors freely distribute copies of their franchise agreements to prospective franchisees at a very early stage of discussions with them. Others, however, are reluctant to part with a copy of their franchise agreement until they are fairly certain that the franchisee will be proceeding. So far, so good.
More commonplace now, however, is a different kind of non-disclosure provision in a franchise agreement in addition to those referred to above. This provision seeks to restrict the franchisee from discussing /disclosing to a third party generally anything about their business or the franchise that is not specifically authorised by the franchisor, in particular anything about a dispute a franchisee may have with his franchisor or indeed any dissatisfaction with the franchise or the way in which it is being run. Is it such a bad thing? I suggest not.
Most commercial enterprises would prefer not to air any grievances they may have with their trading partners in public, and franchisors are no exception. In particular, in my experience, the motives behind such a disclosure by a franchisee are usually tainted with malice and seldom used as a legitimate means of resolving grievances. More often than not, it is used by franchisees as a threat to bring the franchisor to heel, in the mistaken belief that (in some cases at least) in making such disclosure / revelation – or more usually, in threatening to do so – the franchisor will be so afraid of what they perceive will be the ensuing damage to their brand’s reputation and their relationship with other members of its network, that they will seek to accommodate the franchisee’s demands, irrespective of the merits of the franchisee’s case.
Such provisions have always existed in most franchise agreements in a different guise; most have long contained clauses that restrict franchisees from doing anything that might damage the reputation of the franchisor or the brand, the breach of which would result in the ultimate sanction of termination of the franchise agreement. I have heard it said by some that by including such a provision franchisors exhibit signs of insecurity and possibly paranoia and that any franchisor who deals fairly and ethically with its franchisees should have no difficulty whatsoever in weathering a storm that might be whipped up by a franchisee. At the end of the day, it has to be remembered that if a franchisee, by its conduct, adversely affects the reputation of a franchise, this will adversely affect not only the franchisor but also the franchisee itself and all other members of the network.
Whether or not such a provision is enforceable at law will depend on the circumstances of each case, but franchisees should be aware that if they openly air their grievances through the media, they might find themselves at the receiving end of a High Court injunction restraining them from doing so further and quite possibly a claim for damages from their franchisor.
