The franchise agreement provides the important general legal structure for the franchise relationship. But, the franchise operations manual is what fleshes out all of the details. Both documents are critical to the success of a franchise system.
Historically, franchise operations manuals were provided to franchisees in printed form. Increasingly, franchisors are choosing to provide the franchise operations manual electronically -- often in the form of an on-line manual in the franchisor's intranet site for its franchisees.
Preparation of Operations Manuals
At Vinson Franchise Law Firm, we no longer prepare franchise operations manuals for clients. Instead, we refer clients to FranMan Inc., of which Rob Vinson is a part owner.
Rob Vinson and his brother, Kit Vinson, formed FranMan, Inc. (formerly known as Franchise Manuals LLC) in 2005 in response to demand by clients of Vinson Franchise Law Firm for franchise manuals that are:
extremely high quality,
reasonably priced, and
FranMan Inc. specializes in the preparation of franchise operations manuals. It also offers a unique proprietary platform for the on-line hosting of operations manuals, which provides for many useful tools and metrics to allow franchisors to easily adminster their manuals.
Clients of FranMan Inc. include household names, such as: Radio Shack Cricket Communications Panda Express.
For help with the preparation of your franchise manual, please see www.franman.net.
Suggestions for Manual Contents
If you will prepare your own franchise operations manual initially, here are our suggestions.
1. What should be in the franchise operating manual?
The operating manual should include all of the mandatory requirements for operating the franchise according to your quality standards. It should contain all of the details about the franchisee’s general obligations stated in the franchise agreement.
A typical manual includes the following sections at a minimum (depending on the type of franchise):
Introduction – welcomes the franchisee into the system, and outlines the broad terms of the franchisor-franchisee relationship.
Background – provides background information about the franchise system, such as its history, management, and mission statement.
System – includes a detailed description of the franchise system.
Site selection – explains the physical requirements for the franchise location, and includes factors to consider in searching for appropriate locations.
Unit layout and decorating standards – may include prototype plans for layout of the franchise unit, and specific information about the requirements for any required décor.
Required purchases – lists the furnishings, fixtures, equipment, supplies, signs, and other items and services the franchise must purchase, and includes any relevant specifications or approved suppliers.
Equipment operation – instructs on how to use, maintain and repair equipment relating to the franchise operations.
Operating standards – may include specific operational requirements and suggestions in categories such as: staff training; accounting; fees and reports; customer service; advertising; use of the marks; product preparation; service standards; pricing and purchasing policies; appearance standards; inventory control; and insurance.
Contact information – important contact information for the franchisor’s staff, approved suppliers, and emergency contact information.
2. What should not be in the manual?
You must be careful about the types of things that are specified as mandatory in the manual. If you set system standards for something that results in someone being harmed, you may be liable. For example, if you specify the serving temperature for coffee in a fast food franchise, you might be liable for damages if a customer gets burned when she spills a cup of hot coffee in her lap. An experienced franchise lawyer can help point out provisions in your manual that might cause problems for you.
The information in your franchise operations manual should be completely consistent with your FDD and franchise agreement.
Review of Operations Manuals
There are 3 kinds of serious legal risks that can and do arise from a franchise operations manual that is worded improperly. If you manual was not prepared by Franchise Manuals LLC or other experienced franchise manual company, then you may have exposure under your operations manual. We are available to review your franchise operations manual in order to help eliminate or reduce these risks.
The 3 main types of risks arising under poorly-drafted franchise operations manuals are:
1. Unenforceable Franchise Agreement
The franchise agreement outlines the major obligations of the franchisee, and requires the franchisee to follow the mandatory system standards in the operations manual. The operations manual contains the detailed information about how to set up and run a franchise under the franchisor’s system. It is important that the operations manual not be inconsistent with the franchise agreement. Inconsistencies could make the affected parts of the franchise agreement unenforceable.
2. Vicarious Liability
In a normal franchise relationship, the franchisee is an independent contractor of the franchisor, and the franchisor maintains appropriate controls over franchisees in order to protect the goodwill associated with the franchise trademarks and service marks. In this normal franchise relationship, franchisors are usually not responsible for accidents, injuries, or other types of harm by franchisees, and their customers and employees. The franchise agreement is usually carefully written to maintain this protection for franchisors. However, the franchise operations manual can undo this protection by making the franchisee an agent or employee of the franchisor for particular purposes. This can happen when the manual gets too involved in the details of how to run the day-to-day operations at the franchised unit. In that case, there is a risk that the franchisor could be held vicariously liable for the harm caused by the action or inaction of its franchisees or their employees.
A related way in which the franchise operations manual can undo the normal level of protection for franchisors happens when the manual includes requirements in areas involving risky business decisions. If the operation manual includes requirements that relate to the cause of the particular accident or injury, the franchisor may be held liable for negligently imposing improper standards. An example of this situation arose in a case where a hotel franchisor’s operating manual specified the type of door lock to be used for hotel room doors, despite known problems with the lock. When one of the locks malfunctioned and a hotel guest was raped by a stranger in her room, the franchisor was held liable to the victim for substantial damages.
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