Good faith in franchising

Abstract

PurposeThe relational nature of franchising flowing from the contract between franchisor and franchisee which enshrines a close, continuing relationship raises the issue of good faith. While there are academic papers analyzing good faith, these do not capture the practical understanding and expression of the concept and the manner and application in which it operates in the real world of franchising. The purpose of this paper is to assess how good faith is defined and understood by franchise practitioners – franchisees, franchisors and their legal advisors.Design/methodology/approachThe authors have adopted a qualitative approach by conducting and analyzing a series of 18 in-depth interviews with franchisees, franchisors and lawyers specializing in franchising.FindingsThe findings show that good faith is particularly important in franchising because of the disparity in the knowledge and power of the parties. They suggest that good faith is not only a legal notion but also a notion that is linked to the personal relationship between the franchisor and its franchisees. It then plays an important role in terms of management of this relationship and of the system as a whole. Moreover, they demonstrate that there is not one single shared understanding of good faith amongst franchising practitioners. Indeed, franchisees, franchisors and specialist franchise lawyers suggested that good faith can refer to transparency, trust, loyalty, fairness and equity amongst the franchisees, fair play, frankness, respect, ethics, kindness, “best efforts” and personalities.Originality/valueThe originality of the research lies in the fact that good faith is examined through the voice of franchising practitioners who explain how they define and understand good faith rather than through a detached academic lens.