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Operations Manual Part 7

Written by : Joseph Adler
2008-10-15
Operations manuals form an integral part of any franchise system since they are designed to incorporate all of the franchisor’s standards, requirements, operating procedures and policies necessary to operate the franchised business in a manner consistent with the franchisor’s system.

By virtue of certain provisions in the franchise agreement that incorporate the operations manual into the franchise agreement, the operations manual is deemed to form a part of the franchise agreement itself. It is virtually impossible for a franchise agreement to contain details of each and every of its standards. Given this fact, the fluctuating nature of the franchised relationship and the often lengthy duration of the franchise agreement, it is important that the definition of “operations manual” be as flexible as possible to accommodate changes to the system. The definition, therefore, should not only include the form of the manual which was presented to the franchisee at the commencement of the franchise, but also any future amendments, deletions and additions to the said manual (along with all books, pamphlets, bulletins, memoranda, directives, instructions and other materials) and any directives, letters, documents, programs or communications communicated by franchisor to the franchisee from time to time during the currency of the agreement.

The franchisor should also be given broad latitude by the franchise agreement to amend and to replace the manual from time to time to allow it the ability to address new developments in the system. A franchisor should retain the right to supplement its manual with additional information by emailing such information to its franchisees or by posting the amendments on its website, for example. Despite the seemingly wide latitude afforded to franchisors to issue new policies through the manual in this manner, it is not advisable for franchisors to abuse this privilege by unreasonably amending significant terms and conditions of the franchise agreement in a substantial manner by way of the operations manual.

The franchise agreement should make it clear that the manual is being loaned to the franchisee, rather than given or sold to it to protect the confidentiality of the manuals. Upon termination of the franchise relationship, a franchisee should be obligated by the franchise agreement to promptly return the manual and all copies thereof to the franchisor. Franchisees should also agree to maintain the confidentiality of the operations manual (other than the usual exceptions to confidentiality, i.e., except as may be required to conduct their business or as may be required by law). Franchisees should also acknowledge that at all relevant times they had no part in developing the operations manual.

Franchisees are required to operate their franchised businesses strictly in accordance with their franchisor’s operations manual. The franchisee’s failure to meet the standards set out in the manual on a regular and persistent basis should be an event of default, which may warrant termination. Depending on the circumstances, even one violation of a serious operations manual requirement may justify termination of the franchise agreement.
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