Rebecca Young, senior associate at BLM, highlights 6 legal issues you need to consider now
2018 is set to be a tumultuous time across the business landscape, with Brexit negotiations continuing as the UK begins to extricate itself from the EU.
But do you know exactly how Brexit will impact your franchise and how to navigate sometimes choppy Brexit waters?
Franchise agreements are like any other business arrangements, with their foundations rooted in the laws of England and Wales and unlikely to be disturbed by the UK’s withdrawal from the EU alone.
Though there is no specific legislation or overarching franchising laws that regulate the franchising relationship, if your agreement takes you outside the UK or directly within the EU, you may need to revisit its terms and consider the applicability of certain laws after the UK withdraws from the EU.
To prevent a ‘black hole in our statute book’ upon exiting the EU, the government introduced the Great Repeal Bill, which in essence seeks to incorporate all EU law into UK law and minimise disruption.
Over time, the government will decide what aspects of EU law to keep, change or remove entirely, meaning there may be yet still further uncertainty. Not all laws will in any event translate through a process of ‘copying’ across.
With a myriad of legislative updates and reforms driven by the Great Repeal Bill set to come into play, we’ve rounded up the six most pressing legal issues franchisors and franchisees need to be aware of in 2018.
EU competition law currently provides franchisees with a significant commercial edge over competitors. A ‘vertical exemption’ allows franchising to benefit from price fixes, territorial protections and access to supply chains that would normally be inaccessible to small and medium-sized enterprises, within defined parameters.
Some of these advantages are mirrored in the UK’s Competition Act, but this is limited to trade within the UK. Post-Brexit, British franchises that trade outside our borders could lose said benefits and advantages.
Intellectual property rights
An area of paramount importance and potential concern for franchisors who have carefully cultivated a brand will be the protection of their intellectual property rights.
Businesses that hold EU registered IP rights, such as EU Registered Trade Marks, and have chosen to exploit those rights through a licensing programme (such as franchising) may need to revisit their position and portfolio to ensure they are adequately protected, particularly those operating in the UK and which are only protected via EU Registered Trade Marks. Following Brexit, it’s expected that EU Registered Trade Marks will be unenforceable within the UK without an existing UK registered mark. Applying for a UK registered mark could be costly - both in applying for and maintaining registration across two regimes.
For a cross border business, proposed reforms to copyright law across the EU means franchisors should consider copyright protected materials such as handbooks, manuals, databases, software and other unregistered rights.
Many IPRs are reciprocally protected in both UK and EU laws, but where a business has a cross border element, franchisors will need to review whether they are adequately protected, not least given proposed reforms as a result of the Digital Single Market initiative, which introduces new provisions on harmonised enforcement.
Many laws relating to data protection are rooted in EU law.
GDPR is looming and already many businesses are frantically figuring out the increasing number of obligations that will surround the data they collect or have access to. The government has confirmed its commitment to bring GDPR into UK law via the new Data Protection Bill.
As it stands, businesses are best placed to carry on with their own GDPR preparation and keep any data transfers that will take effect outside the UK under review post-Brexit.
Arguably EU legislation has had the greatest impact on employment laws, with many employee rights derived from the EU.
That said, it’s widely accepted that UK laws afford employees a higher standard of protection and our employment rights are well established within UK law.
For many franchisees, of great concern is how Brexit may impact the freedom of movement of workers and the ability to recruit talented and skilled workers. The protection of employees’ rights and access to a broader workforce may be determined by whether we are able to stay within the single market.
Health, safety and environmental law
Many UK food hygiene, health and safety and environmental laws are based on EU regulations.
Many are embodied in UK law and are unlikely to be repealed. However, developments within either respective body of law could impact businesses with a European reach.
A particularly hot topic high on the Brexit agenda is whether the UK will remain within the single market.
A single market prevents the application of tariffs, taxes or quotas to goods or services moving within the defined territory and denial of access to the single market may be prejudicial to many businesses.
Access to the single market isn’t just about trade - it extends to the free movement of people, goods and services and money.
If you rely on the importation of goods to sell to customers, will you be able to absorb the cost of additional tariffs or taxes that may be added upon leaving the EU or will you need to pass that cost to customers?
For franchisees, are your prices fixed by the franchise agreement, leaving your margins narrower and requiring a discussion with your franchisor as to how this impacts the wider network?
Will you be in a position to withstand currency fluctuations or customers’ confidence to spend as they also await how Brexit impacts the economy?
Navigating unchartered territory?
So, you may be asking, where does this leave me and my franchise and what should I be doing now? Though the economic and legal landscape post-Brexit is unknown, there are a number of practical steps you can begin to take.
Open up a dialogue within your franchise network to discuss all anticipated challenges and review your franchise agreement to consider if it will be impacted.
Talk to employees who will be affected by Brexit and assess where you expect growth in the coming years.
Reassess supply chains and also consider how they may be disrupted by currency fluctuations.
Review IPRs and assess whether you are protected. Undertake a financial audit to plan for both growth and stability during Brexit and identify early on any potential concerns.