Digital Compliance in Franchise Agreements: Adapting to India’s Evolving Regulations
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In today’s technological age, it is advantageous for every business to have a strong digital footprint. In the franchising sector, this trend of digital compliance holds particular importance, as multiple independently operated units’ function under a unified brand. Following the established data protection laws, privacy regulations, and cybersecurity standards ensures digital compliance, as all this helps in the protection of sensitive data for the franchise, building customer trust and improving brand loyalty.
Before discussing anything else, let us first discuss the requirements for ensuring the protection of the data, as it is popularly said that data is the new gold:
• Efforts shall be made to create an exhaustive privacy policy dealing with all possible matters in relation to the collection, use, store, transfer, and removal of the data in adherence to the existing data protection laws of the country where they operate. The privacy policy shall be made publicly available at the franchisee’s website and physical locations so that anyone can access them, and if any changes are made to the policy in the future, an intimation shall be transferred by the franchise to its stakeholders.
• The franchises shall store the data generated and collected on secure servers using services like AWS or Azure, which ensures that the data stored is secured through encryption and multi-layered protection. The industry standards shall be complied with and the guidelines for the same shall be provided in the franchise agreement as well.
• The franchise agreement shall clearly mention the cybersecurity protocols established to protect the sensitive data of the franchise and its stakeholders. This shall include encryption, firewalls, and secure access controls. A comprehensive plan shall also be prepared beforehand to deal with situations in case of any breach of any data so as to mitigate the risks and losses.
• Apart from the franchisor and franchisee, the stakeholders also have certain rights with regard to their data. They have the option to request any data access, correction, deletion, or portability, and the franchise cannot reject their request. Procedures shall be specified for making the request, and the same shall be handled within regulatory timeframes.
After complying with the requirements for data protection, certain measures shall be undertaken to prevent the breaches before they get activated. So, the following are some of the cybersecurity measures to be taken by any franchise to enhance security:
• The foremost thing a franchise shall do is to outline mandatory cybersecurity measures in the agreement, which shall be implemented to prevent any breach. These measures can include using anti-virus software like McAfee and building firewalls to ensure multi-factor authentication for accessing any information. And regular security patches should be timely installed to deal with vulnerabilities.
• Business Continuity Plans (BCPs) and Incident Response Plans (IRPs) are crucial for dealing with the event of any data breach or cyberattack. BCPs ensure that the franchise continues its operation smoothly even after any emergency, and the IRPs talk about the immediate steps to be taken, like notifying affected individuals and authorities, calling cybersecurity experts to mitigate the breach, and isolating the affected systems.
• Regular audits by third-party cybersecurity professionals be conducted to check if there are any security gaps present in the franchise system which risk its information and assess the vulnerability so as to address it in compliance with security protocols. The individual or firm of auditing shall be finalized beforehand, and intervals in which auditing be done be mentioned in the franchise agreement itself.
An employee is one of the most crucial assets of any business, and the more skilled an employee is, the better he will serve his business. Creating awareness among them through seminars and training sessions would enhance their capability; thus, comprehensive training programmes should be formulated to cater to such purpose:
• Before the initiation of a franchise, a provision shall be included in the agreement that the franchisee and its staff shall undergo comprehensive training on data protection and cybersecurity as a mandatory component of their onboarding process. This training shall make them realise and prepare to deal with common cyber threats and best practices for protecting sensitive information and handling customer grievances effectively.
• After the commencement of the franchise, the franchisee and its staff shall also undertake continuous education around cyber threats and regulatory requirements. Refresher courses shall be taken periodically to stay updated on the ongoing trends and threats regarding cybersecurity.
• Franchisees are encouraged to introduce ongoing employee awareness programmes to ensure that every team member comprehends their responsibility in preserving data security. This strategy could encompass consistent workshops, phishing simulation exercises, and updates on new security policies and threats, which would make the employees capable of identifying and dealing with real threats in the real world.
Every franchise makes its best effort to prevent a breach, but of course, sometimes the circumstances are such that they are beyond the control of anyone. In such situations, it is important to find out who is or was actually liable for such a breach so that insurance can be claimed accordingly to mitigate the loss suffered. Below is a discussion of the importance of mentioning liability and insurance clauses in the franchise agreement:
• The franchise agreement shall specify clearly the obligations and liabilities of both franchisors and franchisees in the event of a data breach or a compliance failure. Such clauses outline which party is responsible for which costs in association with a data breach, such as legal fees, fines, penalties, notification expenses, and remediation costs. This helps in reducing the burden and sharing the losses effectively in situations where the data breach occurs neither because of the franchisor nor the franchisee.
• However, in cases where the breach occurs because of the negligence of the franchisee, the indemnification clauses mentioned in the agreement transfer the liability from the franchisors to the franchisees. This shields the franchisor from potential risks resulting from non-compliance by franchisees with the cybersecurity protocols.
• Taking an insurance policy helps to mitigate the damage caused by a crisis, and thus, it is recommended that every franchise agreement shall mention in its clauses about cybersecurity insurance. These clauses shall specify the minimum coverage required and outline the incidents which would be covered under those insurances, including data breaches, cyber extortion, and business interruptions caused by cyber events. Apart from that, legal fees, data breach notification, and credit monitoring can also be covered by the insurance claim.
• Instead of taking a separate insurance policy for every franchise, a single master cybersecurity policy can also be taken for all the franchises. The premium of such an insurance policy is also lower as compared to individual policies. This way, uniform protection is assured throughout the franchise network, thereby reducing financial exposure from cyber incidents.
It is clear that with clever planning, intelligent actions, and proper compliance with standards and regulations, digital threats can also be dealt with. Of course, there’s no straight-jacket solution available which would be applicable for every digital threat or which could be utilized by every franchise; thus, a tailor-made solution is preferred in these situations to handle the data protection and cybersecurity challenges.
Authored by: Adv. Anant Sharma & Sahil Arora
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