How are online sales managed across a franchise network?

Shelley Nadler writes:

Franchisees often operate their own websites for online sales, either as a page on the franchisor’s main website or as a standalone site.

Some franchisors may wish to prevent or restrict a franchisee’s ability to make sales online, preferring only to grant the right to make physical ‘bricks and mortar’ sales in the granted territory. The reason for this is often the franchisor’s desire to retain control over its online offering and ensure consistency.

However, such franchisors risk falling foul of competition law. Franchisors operating in the UK and Europe cannot prevent franchisees from making online sales, as these are considered ‘passive sales’ and cannot be banned.

This means franchisors cannot prevent franchisees from selling online, but franchisors can require that the franchisee’s use of the internet complies with certain standards and conditions.

In the fast food and restaurant sector, franchisors may want to limit the delivery areas of franchisees based on quality and food safety requirements. This will be allowed if the restriction can be justified by food safety laws.

Restrictions on franchisee’s use of third party delivery platforms, such as Deliveroo, can be permitted if they’re based on objective criteria. Some franchisors also restrict their franchisees from selling through third party online platforms such as Amazon.

The relevant competition law considerations are complex and if you need further information or are unclear of how online sales are dealt with in your franchise arrangement, you should seek advice from a British Franchise Association affiliated solicitor.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.