The regulation of franchising in the European Union

Abstract

Business format franchising is a specific, distinct and uniform type of commercial activity with significant economic impact in the European Union. It stimulates economic activity by offering significant advantages to all those involved, improving distribution and giving business increased access to other member states. It comprises nearly 10,000 franchised brands, which account for over €215 billion (US$300 billion) turnover per annum. However, compared to its scale in the USA and Australia, franchising is not realising its full potential in the EU. Its disproportionate concentration in the UK, Germany, France, Italy and Spain also evidences that franchising is not promoting trade between member states as much as it could and should do. Applying a comparative law approach and drawing upon member states’ existing statutory laws, this thesis seeks to show that this underdevelopment of franchising in the EU is, in part, due to the regulatory environment it is subject to. This is primarily because of two distinct factors. Firstly, a failure by the member states’ regulatory eco-systems to adequately govern franchising. They fail both to adequately reinforce the economic drivers that attract franchisors and franchisees to franchising and to reduce to an appropriate level the inherent consequential risk to which both parties are exposed. Secondly, there is a lack of homogeneity between the different legal eco-systems which amounts to a barrier to trade between member states. It is proposed that the adoption of an appropriately drafted directive will not only harmonise the approach of the EU’s legal eco-systems towards franchising but will also re-enforce the relevant economic drivers and reduce the inherent consequential risks to an appropriate level. It is suggested that the directive does this by accentuating the influence of three commercial imperatives on the EU’s legal eco-systems. These are promoting market confidence in franchising, ensuring pre-contractual hygiene and imposing a mandatory taxonomy of rights and obligations on to the franchise relationship.