Item 11 of the Franchise Disclosure Document is where franchisors are required to outline their obligations to help support franchisees before and after operations begin. Part of this assistance involves loaning the franchisee a copy of the franchisor’s operations manual (“Operations Manual”). The Operations Manual is a detailed document containing information on the standards and procedures franchisees must meet with respect to the operation of the franchised business. Although franchisors are not required to provide prospects with the Operations Manual before sale of the franchise, they must attach to the FDD the table of contents (“TOC”) and include the total number of pages devoted to each subject as well as the total number of pages in the Operations Manual.
On rare occasions, rather than including the TOC in the FDD, franchisors will choose to allow prospective franchisees to view the Operations Manual before purchasing the franchise. However, the information contained in the Operations Manual is typically deemed confidential by the franchisor. As a result, if the franchisor is going to share it with a prospective franchisee, the franchisor will want to ensure that the prospect first signs a confidentiality and non-disclosure agreement.
The Franchise Operations Manual is a guide and tool for franchisees which will ensure that customers have a uniform brand experience across locations. The contents of the Operations Manual will vary depending on the type of business, but typical issues addressed include:
- The history, goal or vision of the franchisor
- Procedures for finding and developing a franchise location
- Pre-opening procedures
- Equipment and inventory requirements
- Daily operating procedures
- Administrative and reporting obligations
- Payroll, accounting and computer systems
- Marketing and advertising guidelines
- Customer service
- Management procedures
Care must be taken in drafting the manual. It must be detailed enough that franchisors can enforce their standards and franchisees understand their obligations. However, it should not be so specific that the franchisor risks being deemed the “joint employer” of the personnel hired by the franchisee. While the franchisees must adhere to the franchisor’s brand standards, they otherwise own and operate independent businesses. In light of fluctuating joint employer standards, franchisors should consult a franchise attorney to, among other things, ensure the Operations Manual does not permit them to exert too much control over the employment decisions of the franchisees’ employees.
The franchise Operations Manual is an essential part of starting and operating a franchise system. Franchisors should begin working on their documents as soon as possible after deciding to sell franchises. Not only will they need the TOC in order to finalize the FDD, they will need to provide the Operations Manual to franchisees shortly after sales are completed.
If you are considering franchising your business, contact Lusthaus Law for a consultation.