When you find something in a magazine you’re going to need to refer to later, what do you do? Tear it out? Photocopy it? Whatever approach you follow, the map which appears here is a candidate for preservation. It will tell you more about the kinds of regulations of franchising you will find around the globe than a room full of lawyers or consultants, and a lot faster too.
Our law firm updates this map monthly, but sometimes that’s not often enough, as the adoption of new franchise laws can be rapid and often unanticipated. But that’s a relatively recent development. In the 1970s the map would have been almost totally blank (only the U.S Federal Trade Commission Rule, several U.S states and one Canadian province).
As late as the early 1990s, only a few scattered countries had joined the parade. However, in the last two decades the picture has changed dramatically and now includes: more Western European countries, several from the former Soviet Union, Asia and the South Pacific; countries in Latin America; more Canadian provinces; and the first legislation in Africa.
What’s the best way to make use of this map? I suggest you start with the blue countries, those with only ‘disclosure’ requirements, which ensure a franchisor provides a prospective franchisee with detailed information about the investment being considered. You’ll find that the 1979 FTC Rule still serves as a basis upon which disclosure laws (in the U.S states and elsewhere) are based. Outside the U.S the only region where these ‘disclosure-only’ laws appear significantly is in Europe, and all of those within the European Union.
Now turn for a moment to the green, countries with only ‘relationship’ laws. These laws restrict the freedom of action of the franchisor in dealing with the franchisee. While these vary considerably, you’ll find that a common element is likely to be a limitation on the franchisor’s right to terminate the franchisee.
Other common provisions relate to a franchisor’s non-renewal of the franchisee and a franchisor’s right to prohibit or control a franchisee’s transfer of the franchise. Note the heavy concentration of these jurisdictions in the states of the former Soviet Union (several in Europe but outside of the European Union, or in Central Asia).
Finally, look at the red. Here, as in several U.S states, a country has addressed the issues comprehensively and has enacted both disclosure requirements and relationship laws. You will note that the Canadian provinces fall under this category, as do all of the South Pacific and virtually all of Asia. If you are considering doing business in any of those regions, you should be prepared to comply with both types of regulations.
The inescapable conclusion is that you will need the help of counsel with experience in creating disclosure documents, drafting franchising agreements and advising on franchise practices which comply with these requirements. In some cases you will find such counsel in the target country itself, but in much smaller numbers (and thus with fewer options from which to choose) than you might be accustomed to. You may instead turn to counsel in your home country or in a major franchise market who has had experience in dealing with these laws in a number of countries (sometimes calling upon local counsel in the target country).
This map is designed to be a guide of what to expect, and where. But it is not, and cannot be, a complete picture of the laws you will confront. Here are some of the reasons why that’s the case.
The footnotes set out what it does not include, but of which you and your counsel will certainly want to be aware.
Countries which do not have explicit ‘franchise’ statutes, but which may nonetheless as a practical matter reach the same result. Germany, for example, is one of several countries applying a doctrine which imposes a form of pre-contractual disclosure, reaching a result which is nearly indistinguishable from some franchise disclosure statutes.
You cannot assume that the notation that a particular country has a law fitting into one of the means the same thing everywhere. One example of the wide range of ramifications of the categorisation is the consequence of violation. In some countries, there is no governmental enforcement, leaving the dispute entirely to the parties. In other countries, governmental enforcement authorities respond to complaints by aggrieved parties. In others, the government takes a more proactive role. In some cases, violations may constitute criminal offences.
In some countries, there is an additional overlay of governmental activity. One example is the preconditions which some countries impose on the initiation of franchising. This may take the form of a requirement that the franchisor has operated a certain number of company owned stores for a certain period of time – and, in some cases, in the target country itself.
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