Law on Franchise and Individual Privacy
Business Models & Organizational Structure
By Hall Harris
How a Franchise Works
Guide to Understanding Franchise Agreements
Benefits & Problems With Franchising
How to Sell Your Business by Franchise
Franchising is a business model that involves an owner licensing his trademarks and methods to an independent entrepreneur to conduct the same business in another territory subject to the terms and conditions of their agreement. The United States regulates franchising through a variety of federal and state laws, which the Federal Trade Commission, or FTC, and other state agencies enforce. Privacy issues associated with a franchising business include disclosure requirements, franchise privacy policies, customer notification and franchisor's liability for privacy claims.
Franchisor's Disclosure
The FTC franchise rule sets preconditions to a sale requiring franchisors to provide detailed disclosure statements or a prospectus to each prospective buyer at least 14 calendar days before execution of the franchise contract or payment. The disclosure covers a variety of matters that the franchisee might otherwise not know about, including complete details about the parent company and any other affiliates, bankruptcy filings, financing sources, trademarks, patents, copyrights and other relevant proprietary information. The franchisee can use this private information to decide whether or not to buy the franchise. The law requires disclosure of the franchisee's name, address and contact details.
State and federal laws also require that franchisors regularly update franchise disclosure documents with all material changes so franchisees relying on the information are not deceived or misled. Because states have different privacy laws and requirements, franchisors need to research the existing laws in the states where they operate to be in compliance with all applicable laws.
Consumer Notification
The FTC has established fair information practices relating to customer privacy online that franchisors need to observe. Consumers should be given information about the franchise's online privacy policies so they make informed decisions about using the site, and they should have a choice about the use and dissemination of the information the franchise collects. Consumers should also have a way to access the information and to challenge its accuracy and completeness, if the need arises. And consumers should have a way to ensure that the franchisor complies with these principles and have an avenue to report failure.
Franchisor's Liability
Franchisors may be held liable for privacy breaches that their franchisees commit, especially if it happens because the franchisor had no formal privacy policies or because these policies were inadequate. Franchisees generally have a free hand in the way they run their operations, but they must do so in a manner that respects the franchisor's terms and conditions and maintains the general standards of the establishment. To mitigate their exposure to breach of privacy claims, franchisors may control all private company information, including that of the franchisee's business. However, it is a better business practice to establish the general scope of privacy rules so franchisees have some guidelines.
Small Business Administration: Franchise Business
International Law Office: Demystifying U.S. Franchise Disclosure and Registration Laws
Dorsey: Brief Summary of U.S. FDD requirements
American Bar: Franchisor Survival Guide to Online Privacy
Dorsey: Protecting Personal Data in Franchise Systems
Hall Harris' professional business writing career dates back to 2001. He is an MBA and Bachelor of Commerce graduate from Kingston University and the University of Liverpool, respectively. Hall's articles have featured in the "Nottingham Evening Post" and "The International Business Times".
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Franchise Laws
What Obligations Do Franchises & Franchisees Have to Each Other?
Can I Buy a Franchise?
How to Withdraw a Franchise From the Market
Rules & Regulations for Owning a Franchise Business
Components of a Private Franchise
Signs of a Bad Franchise
Advantages & Disadvantages for a Franchise
1 What Factors Should a Buyer Look for in a Franchise?
2 Franchise Laws
3 What Obligations Do Franchises & Franchisees Have to Each Other?
4 Can I Buy a Franchise?