Network uniformity and risk of reclassification of the franchise contract

Abstract

Purpose – Network uniformity is crucial in franchising, but an excessive number of imposed constraints to maintain this uniformity jeopardizes a franchisee’s independence and too much independence given to franchisees jeopardizes franchise network uniformity. So, how to find an equilibrium and avoid the reclassification of a franchise contract as a branch manager contract or as an employment contract with all its related consequences? The paper aims to discuss these issues. Design/methodology/approach – The research is based on a multiple cases approach. The four complementary cases deal with Yves Rocher (cosmetics and body/face care), Bata (shoes), Fiventis (real estate, life insurance and tax-sheltered savings products), and France Acheminement (express transportation), all analyzed in the French context. Findings – A franchise contract can be reclassified as a branch manager contract if there is economic dependence or as an employment contract if there is a legal subordination relationship. These reclassifications have not only financial consequences, but also an impact in terms of image. Research limitations/implications – The research is based on secondary data. Collecting data along with interviews of franchisors and franchisees would be beneficial. Practical implications – The research is of specific interest to franchisors, franchise experts and lawyers in terms of minimizing the possible risks of facing such types of reclassification of franchise contracts. It can also inform franchisees who may be running their businesses under such conditions. Originality/value – This paper uses a business and law approach in order to analyze the paradox of network uniformity and franchisee autonomy and raises the question of “how to find equilibrium?”