I read your story on the Cold Rock franchisees who got put into administration for rebranding the business.
Is there a way that you can legally do this, as a franchisee? I feel the franchise I work for could do with a make-over, but my franchisor isn’t keen.
As the article highlights, as a franchisee, you need to tread very carefully if you are planning to leave the franchise to operate a similar business.
Often franchise agreements contain clauses which protect the franchisor against a franchisee leaving the franchise and subsequently competing with it.
These are known as “non-compete” and “restraint of trade” clauses.
Also, franchisors typically provide a formula for its franchisees to follow. The formula will set out procedures, giving the “brand” uniformity and recognition amongst consumers.
This formula and brand recognition distinguishes the franchisor from independent businesses and is an attraction for new franchisees to buy into the franchise in the first place.
For these reasons, the franchisor will be very keen to protect its brand and intellectual property (IP).
From a legal point of view, the formula most likely forms part of the franchisor’s IP. The IP rights of the franchisor will most likely be protected by the franchise agreement.
My suggestion would be that before you consider leaving the franchise to operate independently of it, seek advice from a business lawyer, who will need to look at your franchise agreement in order to advise you as to what extent (if any) you are restricted from competing or using the IP.
Otherwise, you risk legal action being taken by the franchisor and losing your business, as was the case with the three Cold Rock franchisees in Queensland.
Written in conjunction with Leanne Scott of Carter Lawyers.