The Function of the manual

Most franchise organisations have a manual. Although the size and the contents of the manual vary depending on the organisation, the manual usually concerns the (operational) implementation of a number of elements of the franchise formula. The function of a manual is twofold. Firstly, by 'transferring' the specific implementation of a number of (contractual) provisions to the manual, the size of the franchise agreement may be reduced. Second, interim changes may be made more easily to the manual than to the franchise agreement itself. To most franchise organisations, the manual therefore represents a dynamic document

Further detailing of (operational) provisions

In the manual, the franchisor can work out a number of contractual provisions in greater detail and indicate in 'normal Dutch’ what exactly is meant by them. The manual furthermore as a rule contains a number of practical instructions and directions that, although relevant to the formula, do not lend themselves to being included in the franchise agreement, or not in their entirety in any case. Since in the manual the (various aspects of the) formula are as a rule are worked out in detail and since the manual usually also includes the know-how built up within the franchise organisation, it represents a confidential document in most franchise organisations.

Making interim changes to the manual

Most franchise agreements contain a specific chapter dealing with the manual. This chapter states that the franchise organisation has a manual, that the contents of the manual are an integral part of the franchise agreement, that the franchisee is obliged to follow all instructions and directions contained in the manual and that the franchisor is entitled to amend the contents of the manual. Subsequently, specific references to the manual are included in numerous places in the franchise agreement, always provided with the addition 'as worked out in greater detail in the manual'.

Although it is actually easier to change the manual than the franchise agreement, this does not give franchisors carte blanche to transfer all kinds of relevant provisions to the manual, so as to make it easier to (one-sidedly) implement such changes. Particularly if a provision has a (financial) impact of some significance on the franchisee’s business, this provision must be included in the franchise agreement, after which it may subsequently be worked out in greater detail in the manual.

Reasonableness and fairness

Whether a one-sided amendment clause (concealed in the manual) will have legal effect largely depends on the individual situation. Formally, the franchisor is within its rights when interim changes are made pursuant to such a clause. After all, the parties have 'agreed' that the franchisor is entitled to do so. If a franchise organisation implements a number of changes due to a change of market circumstances, for reasons of competition, because of new strategies or on the basis of a change of laws and regulations, a weighing of interests will as a rule have taken place. In such cases, the interests of the franchise organisation as a whole usually will prevail over those of an individual entrepreneur. If, however, a franchisor implements changes because certain cost items have been overlooked or because the franchisor wishes to improve its own results at the expense of the franchisees, franchisees who are 'disadvantaged' financially by these changes may try to invoke the principle of reasonableness and fairness, with a view to undoing such one-sided changes. Whether they will be successful in doing so is difficult to determine beforehand. With regard to this point, however, the Franchise Act has brought about an important change.

The Franchise Act

An important principle of the Franchise Act is to 'restore' the inequality in franchise relationships. In most franchise organisations, the franchisee has very little influence on the contents of the franchise agreement and related documents such as the manual. The franchise agreement is often signed more or less 'in confidence', while most franchisees furthermore do not have enough knowledge of contracts to be able to assess what exactly they are signing for. Often they only find out afterwards that they have entered into long-term obligations, the impact of which they often only experience afterwards. If, subsequently, by means of one-sided amendment clauses, all kinds of detrimental changes are made on top of all this, this may have far-reaching consequences.

Before the Franchise Act was introduced, franchisees often had their claims dismissed by the courts when they argued that they had not foreseen the consequences of certain contractual provisions. After all, a franchisee is an independent entrepreneur and a contract is a contract, particularly when it comes to agreements between entrepreneurs, the court’s argument being that the franchisee should have been more alert or that it should have sought expert advice.

With the introduction of the Franchise Act, the position of the franchisee has improved considerably in this respect. After all, the franchisor must disclose all relevant information to the franchisee prior to the conclusion of the franchise agreement. Obligations can no longer be 'concealed' in, for example, the manual. In that respect it has also been laid down by law that the franchisee has the right to consent if the franchisor wants to adjust the formula on the basis of a one-sided amendment clause.

This legislation makes it considerably more difficult for franchisors to make one-sided changes by way of the manual, but this does not alter the fact that the manual is still a crucial document for most franchise organisations.

Misconception

Since in the pre-contractual phase the franchisor must share all relevant information with the franchisee, the idea might be conceived that the manual too should be made available to the potential franchisee at least four weeks prior to the conclusion of the franchise agreement. This is a misconception. If the manual contains provisions relevant to a candidate's decision to become a franchisee, those provisions must be shared with the franchisee in a separate information document. The manual itself only needs to be handed over when the franchise agreement has been signed and the cooperation actually starts. However, in most franchising organisations, the manual will be provided to the prospective franchisee simultaneously with the draft franchise agreement, whether or not subject to the condition that the candidate signs a confidentiality agreement.

Providing the manual

Whereas most manuals used to be sizeable books that were physically made available to franchisees in hard copy, most franchise organisations nowadays work with a digital manual. This manual is made available to the franchisee in digital form or may be viewed online, for example on the intranet or by enabling a franchisee to log in on the franchisor's website, thus simplifying matters considerably. After all, if adjustments are made, all that the franchisor needs to do is amend the digital document and inform the franchisees of the contents of the changes.

Nevertheless, this procedure quite often turns out to be not fail-safe. Even in large franchise organisations, the manual referred to in the franchise agreement is not available at all or has only been completed in part. This entails considerable risks, especially if the franchise agreement contains a provision declaring the contents of the manual to be applicable in full.

There are also instances where the franchisor has provided a franchisee with a copy of the manual by e-mail or hard copy but afterwards is unable to prove having done so. If the franchisee disputes having received the manual, the burden of proof that this is not the case lies with the franchisor. It is therefore recommended that the franchise agreement includes a clause stating that the franchisee, by signing the franchise agreement, declares to have taken note of the contents of the manual and to agree to these.