What restrictions are placed on a franchisee in terms of pricing of their goods and services?

Shelley Nadler writes:

The law prohibits anticompetitive agreements that fix prices between businesses. A franchisee therefore controls the price of the goods and services they provide. Any attempt by a franchisor to set a minimum or fixed resale price is prohibited.

Competition law permits a franchisor to fix prices for short-term promotions (generally two-six weeks) coordinated across the franchise network. If a franchisor wants to fix prices for shortterm promotions, this right must be included in the franchise agreement.

If a franchisor wants to implement a promotion, they can only do so where the franchisee has agreed to participate. Crucially, the franchisee must be free to opt in and out of the promotion and the franchisor should make it clear to customers the promotion is available at participating outlets only.

However, franchisors do have some degree of control over the price of goods sold by franchisees. It’s possible for a franchisor to impose a maximum resale price and franchisors may also provide franchisees with a list of recommended prices.

Again, in doing so franchisors should be careful that they don’t have the indirect effect of achieving a fixed or minimum resale price. If a franchisor wishes to impose maximum prices, this right must be included in the franchise agreement.

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.