Legal & Compliance Watch: What Franchisors Need to Know

Insights from Natalia Shvarts, Franchise Law Partner at Excello Law

Franchising in the UK has always been an interesting mix of structure and flexibility. We do not have franchise-specific legislation. There is no statutory requirement to have a disclosure document, no franchise register and no single piece of legislation that tells franchisors exactly how they must recruit, support or manage their franchisee networks.

But that does not mean franchising is unregulated.

A franchise network sits across contract law, intellectual property, competition law, employment law, consumer law, data protection, property, tax, health and safety, and sector-specific regulation. For some networks, particularly in care, education, children’s activities, fitness, food, hospitality and retail, the regulatory picture is even wider. On top of that, responsible franchisors should also be looking closely at the British Franchise Association’s (“BFA”) Code of Ethics.

The Code is not law. It does not automatically form part of every franchise agreement. But for BFA members, and for anyone who wants to operate to recognised standards of ethical franchising, it is a very important benchmark.

Its core principles are not complicated: fair dealing, transparency, good faith, proper disclosure, a workable business model, proper training and support, and a clear recognition that franchisees are independent business owners.

These principles matter now more than ever.

Franchising is under closer scrutiny

One of the most important developments for the sector is the growing political interest in franchising.

In February 2026, the House of Commons Business and Trade Committee raised concerns about the way some franchise networks operate, particularly around employment standards, accountability and the balance of power between franchisors and franchisees. The Committee recommended that the Government review the current franchising position and consider whether a statutory code of conduct and stronger independent enforcement are needed.

That does not mean we are about to see franchise legislation tomorrow but it does mean the sector is being watched.

For good franchisors, this should not be seen as a threat. Ethical franchising has nothing to fear from sensible scrutiny. The BFA Code already gives the sector a recognised framework for how franchisors and franchisees should behave. The question is whether franchisors are applying those standards in practice, not just referring to them in membership material or recruitment packs.

The challenge is that the sector is not judged only by its best operators. It is also judged by the networks where franchisees feel misled, unsupported or trapped.

Franchisors should therefore review the parts of the relationship that often create problems: recruitment materials, financial illustrations, sales conversations, renewal terms, variation rights, termination rights, supplier arrangements, marketing fund contributions and dispute escalation.

The practical test is this: would you be comfortable explaining your model, your franchisee recruitment process and your contractual rights to a regulator, a journalist or a parliamentary committee?

If the answer is no, there is work to be done.

Recruitment and disclosure remain high-risk areas

The franchise recruitment process is still one of the biggest legal and ethical risk points for franchisors.

The Code requires recruitment, advertising and publicity material to be free from ambiguity and misleading statements. The BFA Code goes further and makes the practical point that honesty and transparency are required throughout the recruitment process.

That means franchisors should look carefully at what is being said in brochures, discovery days, webinars, franchise exhibitions, calls with prospects, social media posts, emails and conversations with brokers.

It is not enough for the franchise agreement to contain a non-reliance clause if the sales process has painted a misleading picture.

Financial illustrations need particular care. The BFA Code is clear that figures must be based on real experience, not aspiration. Franchisors should not cherry-pick only the best-performing franchisees, assume that franchisees will achieve company-owned results, or leave out important operating costs.

A disclaimer is useful, but it is not a cure for bad projections. No lawyer can draft a franchisor out of misleading numbers.

The practical rule is simple: if the figures cannot be properly explained, evidenced and defended, they should not be used.

Franchisors should also make the requirement for prospective franchisees to obtain independent legal advice a proper part of the recruitment process and a requirements. Prospective franchisees should be told clearly, and in writing, that they must take advice from a solicitor with franchise experience before signing and should be allowed sufficient time to do so before they commit. The purpose is not to invite negotiation of the franchise agreement but to ensure that the franchisee understands the legal and financial commitment they are taking on, including the term, fees, territory, renewal rights, restrictions, termination provisions and personal guarantees. The recent case which involved Pitman Training Ltd (“Pitman”) is a useful reminder of why this matters. Pitman successfully defended claims for fraudulent misrepresentation and breach of contract, and one of the practical lessons from the case is the importance of a clear pre-contract process, clear agreement wording and ensuring that franchisees understand the rights they are being granted. A franchisor who can show that the franchisee was given proper disclosure, adequate time, a clear agreement and a firm instruction to take independent legal advice will be in a much stronger position if the relationship later breaks down.

Employment Rights Act 2025

The Employment Rights Act 2025 is being implemented in stages. Changes already introduced or coming through include wider access to statutory sick pay, day-one paternity leave and unpaid parental leave, strengthened whistleblowing protection around sexual harassment, increased protective awards for collective redundancy failures and the creation of the Fair Work Agency.

Many franchisors will quite rightly say that their franchisees employ their own staff and that this is franchisees’ responsibility. Whilst it is true that franchisees are recognised as independent entrepreneurs the expectation is that franchisors will provide guidance and support to their networks to enable their franchisees to navigate those changes. In addition since franchisors typically provide template documentation to be used by their franchisees, they will need to ensure that employment contracts have been updated.

If a franchisee underpays staff, mishandles harassment complaints, ignores whistleblowing concerns or repeatedly breaches employment rules, the damage does not stay neatly inside that franchisee’s company. It can damage the whole brand. It can also raise uncomfortable questions about what the franchisor knew, what standards it set, what training it provided and how it monitored compliance.

Franchisors need to be careful not to cross the line into managing franchisee employees but he operations manual should set minimum standards around lawful employment practices, anti-harassment, safeguarding, wage compliance, health and safety, grievance handling and record-keeping. The operations manual should not simply say “comply with the law”. It should explain what the franchisor expects as a minimum standard of operation under the brand.

This is especially important in people-heavy sectors such as domiciliary care, food and beverage, hospitality, fitness, children’s activities, education, retail and cleaning.

Consumer law has become harder to ignore

The Digital Markets, Competition and Consumers Act 2024 has given the Competition and Markets Authority stronger consumer enforcement powers. Since April 2025, the CMA has been able to enforce consumer law directly, including by imposing financial penalties.

For franchise networks, this matters because customer-facing activity is often shared.

The franchisor may control the website, booking journey, online advertising, review process, brand templates, pricing structure, customer terms, promotional campaigns or central call scripts. The franchisee may then deliver the service locally.

That creates an obvious question: who is responsible for what the customer is told?

Key areas to review include hidden charges, drip pricing, misleading promotions, countdown timers, fake or misleading reviews, unfair cancellation processes, automatic renewals and subscription contracts.

This is particularly relevant for networks that sell memberships, classes, care packages, monthly services, children’s activities, gym access, tutoring, cleaning plans, home services or any other recurring consumer arrangement.

Franchisors should not assume that because the franchisee contracts with the customer, the franchisor has no exposure. If the franchisor creates or controls the customer journey, it needs to understand the consumer law risk.

Data protection: central systems need proper documentation

Most modern franchise networks now rely on central systems: CRMs, booking platforms, customer apps, marketing automation, shared databases, reporting dashboards and sometimes AI-driven tools.

That is commercially useful. It also creates legal complexity.

The Data (Use and Access) Act 2025 makes changes to UK data protection law, including in areas such as subject access requests, complaints, recognised legitimate interests, direct marketing and children’s online services.

For franchisors, the key point is not simply that the law has changed. The key point is that many networks still do not have data documentation that reflects what actually happens.

Who is the controller? Who is the processor? Can the franchisor market to the franchisee’s customers? Can the franchisee use customer data after termination? Who deals with subject access requests? Who reports a breach? What happens when a franchisee sells the business or leaves the network?

These questions should be answered in the franchise agreement, data processing terms, privacy notices and practical procedures. Generic GDPR wording is often not enough.

Where the network deals with children, vulnerable customers or sensitive information, this becomes even more important.

Fraud prevention and Companies House reform

The Economic Crime and Corporate Transparency Act 2023 continues to affect business compliance. The new failure to prevent fraud offence came into force on 1 September 2025 and applies to large organisations. Companies House identity verification is also being phased in for directors and persons with significant control.

Smaller franchisors may not be caught by every new offence but the message is clear: businesses are expected to take fraud prevention, financial transparency and governance seriously.

Franchisors should look carefully at areas where money moves through the network. That includes management service fees, marketing funds, supplier rebates, customer payments, gift cards, loyalty schemes, procurement arrangements and central invoicing.

Supplier rebates deserve particular attention. If franchisees are required to buy from approved suppliers, the franchise agreement should clearly explain whether the franchisor may receive rebates, commission or other commercial benefit.

Premises, safety and environmental compliance

Premises-based networks should also be watching Martyn’s Law. The Terrorism (Protection of Premises) Act 2025 received Royal Assent in April 2025 and is expected to have an implementation period of at least 24 months. It will require certain public premises and events to be better prepared for terrorist threats.

This could be relevant to hospitality, leisure, gyms, retail, education, children’s activities, events and entertainment. Franchisors should start thinking about whether their network will need central guidance, training, risk assessment templates or premises checklists.

Environmental compliance is also moving. In England, workplace recycling rules changed from 31 March 2025, with micro-firms having until 31 March 2027. Packaging extended producer responsibility is now creating additional reporting and cost obligations for businesses in the packaging chain. A deposit return scheme for drinks containers is due to be introduced in October 2027.

Food, drink, retail and hospitality franchisors should review this now. If packaging, suppliers or waste arrangements are influenced centrally, the franchisor may need to provide clearer guidance to franchisees.

Recent cases: three useful reminders

Recent cases also give franchisors some useful lessons.

In Ellis v John Benson Ltd, the High Court found that franchise agreements between a driving school franchisor and former franchisees contained implied terms of good faith and fair dealing. The franchisor’s breaches were held to be repudiatory, allowing the franchisees to terminate.

This does not mean every franchise agreement now contains a general duty of good faith. But it does show that courts may look closely at the reality of the relationship, particularly where there is dependency, imbalance and long-term reliance.

The message for franchisors is simple: do not assume that strict contractual rights can always be exercised without regard to fairness, context or conduct.

In Dwyer v Fredbar, the Court of Appeal held that a 12-month post-termination non-compete was unenforceable on the facts. Restrictive covenants in franchise agreements are not automatically valid just because they are common. They need to be properly justified and no wider than reasonably necessary.

Franchisors should review their non-competes, non-solicitation clauses and non-dealing restrictions. Boilerplate wording is not enough.

In Thatchers v Aldi, the Court of Appeal found that Aldi had infringed Thatchers’ trade mark by taking unfair advantage of the reputation in Thatchers’ cloudy lemon cider packaging. The case is not a franchise case, but it matters to franchisors because brand presentation is central to franchise value.

Franchisors should protect distinctive brand assets properly and control how franchisees use them. Local marketing, local packaging, social media templates and promotional material all need sensible oversight.

What franchisors should do now

This is not about panic. It is about discipline.

Franchisors should review:

• franchise recruitment materials and earnings information;
• franchise agreements, renewal terms and termination rights;
• operations manuals and compliance standards;
• employment standards expected across the network;
• consumer-facing pricing, reviews, subscriptions and cancellation processes;
• data protection documents and actual data flows;
• supplier rebates, marketing fund provisions and financial transparency;
• fraud prevention and Companies House compliance;
• premises, safety and environmental obligations; and
• restrictive covenants, good faith obligations and brand protection.

The BFA Code of Ethics gives the sector a strong benchmark. But a benchmark only helps if franchisors use it.

A strong franchise system is not built only on a good brand and a well-drafted franchise agreement. It is built on trust, standards, transparency and proper support.

That is where the best franchisors will stand out.