Train franchisees to understand breach procedures in advance

At a recent franchise mediation I facilitated, a franchisee was upset about a breach notice that had been issued by the franchisor.

The franchisee described it as a “dirty, filthy letter” and was seething about both the breach notice’s content and that such an abomination should be laid before him.

The franchisee was truly angry, and left the franchisor in no doubt about the displeasure the breach notice had caused.

And all this was almost a whole year after the notice had been issued. If the franchisee was still this angry about the breach notice nearly a year later, you can only imagine how ballistic he must have been at the time of receiving it.

Unfortunately, this franchisee’s reaction serves as an example of a typical response to receiving such a notice by any franchisee of any system.

In short, breach notices are received like bombs that explode in the hands of the recipient and create in them an aggressive desire to explode straight back at the franchisor.

So what is a breach notice and why is it such a catalyst for conflict in franchising?

A breach notice is a formal written warning by a franchisor that the franchisee has contravened one or more conditions of their franchise agreement and must fix these problems within a certain timeframe or risk the cancellation of their franchise.

In real terms, it is a reminder to play by the rules and stay focused on the game, but this is often not how a breach notice is received.

Franchisees are likely to be at first indignant that whatever the breach notice has alleged as non-compliant may – in their eyes – actually be compliant and possibly even operate more effectively or efficiently than the franchisor’s mandated approach as laid down by the operations manual. (In other words, common breaches of franchise agreements arise from unauthorised franchisee innovations that may contravene the franchise operations manual).

Indignation soon becomes anger as the franchisee senses that the potential threat of their franchise being terminated could be real, and this poses a danger to both their livelihood and investment.

Finally, anger may pass into resentment as the franchisee reorganises their priorities to accommodate what may appear in their eyes as the outrageous and unreasonable demands of the franchisor to do certain things by a certain date, or else have their agreement terminated.

When a breach notice has been issued, there is a tendency among franchisees to shoot the messenger. Whoever puts their name to a breach notice risks thereafter becoming a target for franchisee aggression or derision.

This aggression or derision can endure long after the issue which gave rise to the breach notice has been remedied. The relationship between the franchisee and franchisor (and particular franchisor representative) may be irreparably damaged and underscored by distrust and loathing on the franchisee side, and bewilderment or belittling on the franchisor side.

There is no easy fix to getting franchisees and franchisors working happily together after a breach notice has been issued, so a better approach may be to improve the understanding of how and why breach notices are issued to take the sting out of their arrival should a franchisee ever receive one.

In a perfect world, franchisors will include one or more modules in a new franchisee’s orientation training about what happens when the system is not followed, including a free and frank discussion about breach notices and an assessment of a typical breach notice.

Through training in advance, franchisees may develop a better understanding that a breach notice is not an unrestrained personal attack on the business operator, but a formal requirement of the business partnership between franchisor and franchisee to outline areas of non-compliance, establish what must be done to rectify the non-compliance, and a deadline by which it must be done.

In many other businesses, formal written advice of non-compliance is expected as part of the process of resolving contractual non-conformance, and franchising is no different.

Yet somehow, franchisees are drawn to the business partnership image of franchising, without fully appreciating that the partnership is built entirely on a contract and a set of operations manuals that spell out the rules and obligations of the relationship.

Realistically, franchisees should be taught during training that receiving a breach notice may be a real possibility at some point in the franchise relationship, but that a breach notice is not a personal vilification of the franchisee. Rather, a breach notice is one way by which the uniformity and integrity of the system – and everyone’s investment in that system including the franchisee’s – can be protected.

International export success story Gloria Jean’s Coffees included sample breach notices and breach procedures in franchisee induction training in the last couple of years, and say it has made a big difference to the way that newer franchisees manage compliance problems if they are issued with a breach notice.

In essence, they understand that a breach notice (sometimes also known as a notice to remedy, alignment notice or suchlike) is not the end of the world – that any verbal coaching about a compliance issue must inevitably be set out in writing, and that the compliance issue usually must be addressed within a certain timeframe. Such training also stresses that a franchise is a conditional grant and reiterates that a compromise in the business model and its standards anywhere could have long-lasting and potentially damaging effects to the brand everywhere.

If franchisees and franchisors expect to work together for one or more terms of their franchise agreements, then franchisors need to address the good, the bad and the ugly side of their life together during training (and beforehand) so that a franchisee is properly prepared for the journey ahead of them.

The journey won’t be all plain sailing for either party but at the very least a little bit of understanding applied up front could save a lot of unnecessary tension and unproductive tension later on.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.