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How Compliance Programs Equals Preventative Maintenance

By Newsletter

When you are in the courtroom, it’s too late to say – “If only I had started a good Compliance Program, I would not be in this mess now!”  Why not be proactive and start your Compliance Program before it’s too late?

The goal of a good Compliance Program is to further the business objectives of the franchise system while avoiding disputes and franchise litigation, whenever possible.  But, if a franchise company finds itself in litigation, a well-developed and properly implemented Compliance Program can serve as a shield to protect the business interest of your company, and serve as a sword to enforce the franchise system requirements of your Franchise Agreement.  For example, consistently applied procedures leading up to termination of a franchise can act as strong evidence in an injunction lawsuit where the franchisee contests the franchisor’s action or refuses to acknowledge the termination.  Evidence that a franchisor not only followed the provisions of the franchise agreement but also its policies and procedures should defeat a franchisee’s claim for wrongful termination.  The ultimate goal of a good Compliance Program is being able to show that the franchise company acted fairly, reasonably and consistently with the provisions of the franchise agreement.

Your development and implementation of a Compliance Program can create a solid foundation for your franchise company by incorporating four fundamental steps:  1) Determine what issues are the most important when analyzing your particular franchise system.  2) Establish the policies and procedures to facilitate the franchise system’s particular business objectives.  3.) Make sure your company communicates it policies and procedures, and standards clearly and regularly to franchise personnel, as well as all franchisees.  There should never be a dispute over what your policies are or whether the franchisees are aware of your policies and procedures.  4) Actively monitor and apply policies and procedures diligently and consistently throughout the entire franchise system.

Once a compliance officer is chosen, it is essential that he or she maintain a good line of communication with franchise counsel, particularly in the early stages of implementing your program.  Because our firm philosophy emphasizes a team approach, we already know how important it is to work closely with the compliance officer to review federal and state laws affecting your franchise business, your FDD documents for compliance with disclosure issues that are likely to arise, required amendments to your FDD, legal aspects of advertising and registering proposed ads in certain states prior to running the ad, initiating procedures to track contacts with prospective franchisees, renewal dates, and monitoring changes in new case law which may have an effect on your company.  By working with our firm, we will assist the compliance officer in tracking compliance by establishing a checklist at the pre-sale, sale, pre-opening, and performance stages of the franchise process.  With a compliance officer overseeing the checklist, he or she can insure that each checklist has been completed before moving to the next stage of the process. 

An effective Compliance Program must be structured to fit each franchising company’s personnel and methodology.  If your company has not initiated a legal Compliance Program, then you may find your company in the courtroom asking “Why didn’t I start a Compliance Program?”  If your company already has a Compliance Program, make sure you have addressed the four fundamental steps for launching a solid Compliance Program.  Being proactive and building a good solid Compliance Program may mean the difference between being successful or being out of business.

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