While the franchise sector has the advantage of using an established model backed by a record of success, it has faced a series of setbacks, with load shedding, increased fuel prices and interest rates, a weaker rand and Covid-19 all taking their toll.

In recent months, several high-profile cases have arisen, involving substantial franchisers such as Pick n Pay, Shell and Cash Crusaders, which have all resulted in litigation.

‘As is always the case, this litigation is adversarial and destructive of relationships, which is of benefit to no-one concerned,’ says Fluxmans Attorneys’ Ian Jacobsberg, director of the Franchise Association of SA.

Writing in Business Day, he notes the Consumer Protection Act (CPA) was the first and is still the only law in SA that expressly provides terms for the franchise relationship. However, it does not contain express provisions regulating the ongoing relationships between franchisers and franchisees.

The Franchise Association of SA subsequently tabled an industry code for adoption in terms of section 82 of the CPA.

The draft code consists of two main areas: an alternative dispute resolution mechanism for disputes among franchisers and franchisees; and a code aimed at regulating conduct in the industry and providing for certain matters not dealt with by the CPA.

* The dispute resolution mechanism provides for the appointment of a franchise industry ombud, who will have the power to hear representations from the parties to any dispute concerning or related to a franchise relationship, and make recommendations to resolve the dispute. This process has certain distinct advantages over litigation through the courts. As opposed to the ‘all or nothing’, ‘winner and loser’ outcomes of litigation, the ombudsman will be able to seek a resolution balancing the best interests of both parties.

* In terms of the draft industry code, every franchiser will have to include a notice in all its disclosure documents and franchise agreements that they are bound by the code, and informing the franchisee that they are entitled to refer any dispute to the office of the ombud. They are also required to provide any franchisee with a copy of the code on request.

* The code also sets out standards of conduct to be observed by franchisers and franchisees. These include complying with franchise legislation; observing the constitutional values of dignity and equality; refraining from unfair discrimination; dealing in good faith with each other; responding to each other in a reasonable time; complying with the code of the Advertising Regulatory Board in all marketing, promotions and advertising; and paying all levies arising in terms of the code to the ombud timeously.

* The code also lays out specific responsibilities for franchisers, including providing franchisees with training, supervision and assistance in operating the franchise business. They will also be required to deposit all monies paid by a franchisee in contemplation of the conclusion of a franchise agreement into a separate bank account; and to notify the franchisee in writing of any alleged breach of a franchise agreement.

* In the event of a breach, the franchiser must afford them reasonable time to remedy it, except where the franchiser is entitled to terminate the franchise agreement without notice.

* Franchisers are also required to be the owner or authorised licensee of all copyright, trademarks and intellectual property used in the franchise business.

Jacobsberg notes the code has been through a number of iterations. 

‘It is hoped that once accredited and gazetted it will not only enhance the culture of co-operation and mutual dependency between franchisers and franchisees, but also promote the resolution of disputes in a mutually beneficial manner, allowing the parties to continue an effective working relationship.’

Full opinion piece in Business Day