Freedom of speech

Franchisees are increasingly better informed not only about their rights but also about various ways in which they can bring pressure to bear on their franchisor with whom they may be in contention. Franchisors, on the other hand, are increasingly aware of the need to protect their reputations, particularly those facing increased competition.

Clauses in franchise agreements which are usually referred to as non-disclosure provisions have been commonplace for some time. These are clauses which prohibit a franchisee from disclosing to third parties (other than their professional advisors) the contents of their franchise agreements, details about their franchised business or that of the franchisor and the method of operation of a particular franchise. The reasons for such a prohibition are obvious. Franchisors expend a good deal of money in establishing the wherewithal to franchise and it is therefore not surprising that they seek to guard jealously those matters which they perceive to be confidential and of value to them. Included in this, of course, is the franchise agreement. Having said that, it does depend upon 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.

However, what we are concerned with here is a trend we see emerging of a different kind of non-disclosure provision in a franchise agreement, in addition to those referred to above. This seeks to restrict the franchisee from discussing/disclosing to a third party generally anything about their business or the franchise which is not specifically authorised by the franchisor and in particular anything about a dispute a franchisee may have with his or her 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 it rightly or wrongly perceives will be the ensuing damage to its reputation, that it will change its attitude and approach to its franchisee irrespective of the merits of the franchisee's case.

In practice, of course, such provisions have always existed in most franchise agreements in a different guise. Most franchise agreements have long contained clauses which restrict franchisees from doing anything which might damage the reputation of the franchisor or its brand, the breach of which would result in the ultimate sanction of termination of the franchise agreement. What is happening now is that the new clauses effectively spell out, and are therefore intended to act as a deterrent and a warning to the franchisee, what was previously stated in a more restrained manner. 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 which 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 in law will depend on the circumstances of each case. However, franchisees should be aware that if they openly air their grievances through the media, they may find themselves at the receiving end of an injunction restraining them from doing so further and quite possibly a claim for damages from their franchisor for any damage to that franchisor's reputation.