Franchisor Responsibilities and Liabilities in India: What Delhi Franchisors Need to Know

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Franchisors are the ones who initiate the business under a particular brand name and then expand their business at various locations through an agreement with some other individuals known as franchisees. This simple explanation is enough to show that without the franchisor, this franchise system cannot be initiated. The majority of the weight of running a franchise falls on the franchisor, as he is the one who gave instructions to the franchisee regarding the manner in which the franchise shall be operated, and without his consent, no task can be done which is not mentioned in the franchise agreement. Franchisors thus have to be very responsible with the duties they perform and the duties they delegate to be performed by others.

Following are some of the points which highlight the responsibility of the franchisor to provide ongoing support to the franchisee to ensure success in its business:
• Providing training acts as a crucial support to the new franchisees, as initial training helps them get a good boost. This initial training helps the franchisee and its staff by getting familiar with the operations of the franchise, the environment to be maintained, the procedure to prepare the products, the customer service, etc. Apart from initial training, online training is also an important support as it helps the franchise stay updated whenever any changes are made in the franchise system or new products, services, or technology are introduced. Example: McDonald’s offers various training programmes in the form of hands-on training, seminars, conferences, etc. They offer comprehensive management courses from Hamburger University in 28 different languages.
• Effective operational support is vital in empowering franchisees to effectively manage their businesses by adhering to the brand’s standards. This could involve aiding in supply chain coordination, marketing, quality control, resolving operational hurdles, and sharing strategies for maximizing productivity. Example: Subway offers continuous support to its franchisees through sourcing ingredients, maintaining hygiene standards, and optimizing store layout to drive operational excellence.
• Marketing and advertising are very powerful tools to attract customers and new franchisees, and thus, franchisors often invest a significant portion of their revenue in the promotion of their brands. Depending on the tastes of a particular region or nation, the advertising is modified to meet their needs. And sometimes, just some templates and guidelines are provided to the franchisees for local marketing. Example: Domino’s Pizza runs nationwide marketing campaigns to increase customer visits to its stores, guaranteeing brand uniformity and enhancing customer awareness.

The main secret of a successful franchise chain is that it maintains uniformity in all its products and services across all its franchises. And to maintain uniformity, the franchisors have to ensure that the established standards of the brand are followed in the same manner in every franchise.

Following are some of the tasks which ensure that the standards of the brand are maintained and followed effectively:
• Customers around the world expect that wherever they go, they will get the same quality of product or service in every franchise under a particular brand; thus. the franchisor has a responsibility to ensure that the quality of all the franchises is regularly checked and kept under control. For this, regular inspections and audits shall be conducted to ensure that the franchises adhere to the quality standards for the products and services as prescribed by the franchisor. Example: Starbucks tests several batches of the coffee every day to ensure it meets quality standards as prescribed, and they themselves source the coffee from farmers in a particular region to ensure consistent quality.
• The uniformity in the outlet of the franchise helps the customer identify that the franchise is a genuine one. For this, the franchisors ensure that all their franchises follow and maintain a consistent colour scheme in their outlets, uniforms of the staff, decorations, menus, packaging, etc. Example: 7-Eleven stores nationwide have a similar layout. The signage, uniforms of the employees, and packaging of products are also uniform across all stores. This ensures that customers can easily find the location and receive the same service wherever they visit.
• Customer satisfaction shall be the prime target of every business, and a customer would feel satisfied only when he is provided with quality service. The franchisors shall ensure that the customers receive consistent experiences at all locations, and for this, standardized customer service protocols shall be enforced. This includes how services are delivered, the behaviour and appearance of staff, the manner of handling customer complaints, etc. Example: Marriott Hotels team is expertly trained to anticipate and fulfil guest’s needs, deliver personalized service, and greet guests by their name whenever feasible. They have a structured procedure to handle customer complaints, empowering staff to efficiently address and resolve issues and ensure guest satisfaction.
A popular saying is that with great power comes great responsibility. This could be continued by adding that with great responsibilities comes accountability for potential liabilities as well. Meaning that, no doubt, the franchise runs with the joint efforts of the franchisor and the franchisee, the franchisor alone can be held liable for certain actions if they violate certain regulations or hamper the brand’s reputation.

Some key areas where the franchisors can be held liable, even for the actions of the franchisees, are discussed below:
• If the franchisees fail to comply with the laws or standards prescribed by the government or any higher body or organisation, the franchisor can be held accountable for the same. This situation becomes more troublesome if it is proven that the franchisor negligently or intentionally did not provide adequate instructions, training, or guidelines to the franchisee. The violation under this can be in relation to complying with health standards, safety regulations, fair wages, employment practices, etc. where the franchisor has some influence or knowledge about those practices.
• Most of the time, the franchisor mentions in the franchise agreement regarding the intellectual properties (IP) they have, how to use them, the restrictions on their usage, etc. However, if, even after all this information, the franchisee misuses the IP in any manner in contravention of the agreement, then along with the franchisee, the franchisor can also get struck in the legal action taken against the franchise.
• Consumers are the prime focus of any business, and any practice which they feel violates their rights could land the franchise in trouble. For instance, in cases where franchisees engage in practices that negatively impact the consumers, like engaging in false or misleading advertisements, or offering low-quality products, the franchisors can be held liable for those actions.

In conclusion, it is right to say that for ensuring success and uniformity across all the franchises, the franchisors have significant responsibilities to fulfil. From providing support before the initiation of the franchise to training during the franchise’s operation, and dealing with the actions which he did not carry out, performing the role of the franchisor is not at all a cakewalk.
Authored by: Adv. Anant Sharma & Sahil Arora

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