How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Over the last decade or so, one of the growing trends in
franchising has been how franchisors address issues with “large” or
“national account” customers, which for ease of reference will
simply be referred to as national account customers. In some
franchise systems, issues around national account customers are not
of any real importance. For example, a franchise system that
operates retail coffee shops does not typically have national
account customers as virtually all of the customers of the
franchise system will be individuals who buy coffee and related
items at one of the franchised system’s coffee shops.
On the other hand, franchise systems that involve the grant of territorial rights often must address how they will deal with national account customers as typically these customers will have places of business in the territory of more than one of the system’s franchisees. An example of this is a franchise system that offers janitorial services to large commercial customers who operate their business throughout the country and have premises that are in need of cleaning situated in territories that have been granted to different franchisees. Commonly these types of national account customers do not want to deal with multiple franchisees but prefer to enter into a contract with the franchisor or one of its affiliated companies to have the franchise system’s services provided at each of the customer’s premises no matter in which territory they might be located.
Typically, franchisors will address issues surrounding national account customers by reserving the right to provide the services the franchisees would usually provide either directly itself or through its franchisees. Each franchise agreement the franchisor enters into with its franchisees will contain provisions about national account customers and will provide a detailed definition of when a customer is deemed to be a national account customer. Usually, a national account customer will be defined as one who requires the services offered by the franchise system at premises located in the territories of more than one franchisee.
The franchise agreement will also often provide that the franchisor will first give the franchisee the opportunity to perform the services for the national account customer within its territory but the franchisee must do so at the price agreed to by the franchisor and on the other terms and conditions that the franchisor and the national account customer have agreed to. Some franchisees will not want to perform the services for the national account customer given the amount the franchisee will receive for performing the services and how the services must be provided. It cannot be forgotten that these particular issues have been contracted to between the franchisor and the national account customer, and not between the franchisee and the national account customer. In this scenario, the franchisor will then either provide the services to the national account customer itself or by way of a neighbouring franchisee that is prepared to provide the services to the national account customer on the terms and conditions agreed to between the franchisor and the national account customer.
With the growth of franchisors doing business with national account customers, both franchisees and franchisors need to consider carefully what their rights and obligations are with respect to a national account customer. Franchisors who do not carefully consider this issue may find that they cannot directly provide services to national account customers without being in breach of their agreements with their franchisees. Franchisees need to carefully consider what are the rights of the franchisor to perform services directly to national account customers and what happens if the franchisee refuses to provide the services to a national account customer.
