Franchise Agreements in General

Franchise agreements can be regarded as one category of distribution agreements. In franchising, the owner of a business concept, the franchiser, grants the reseller, the franchisee, certain rights in relation to the business, such as, the right to use the business chain’s name, business concept and trademarks. The franchiser continues to maintain and develop the business concept and carry out marketing. The franchisee, on the other hand, pays the franchiser an initial fee and annual fees.

Only a few countries (for example, Sweden) have adopted specific laws applicable to franchising. This is, however, not the case in Finland. Therefore, the agreement of the parties plays a central role, as is the case with reseller agreements in general. In franchising, the franchisee is often required to accept the contractual terms drafted by the franchiser. In addition to issues generally relevant for reseller agreements, such terms should take into account special characteristics relating to franchising. Furthermore, particular attention should be paid to the manner in which the franchiser will control the operations of the business chain and an individual franchisee. If the control is too detailed, from the franchiser’s point of view there may be a risk that the agreement is, in extreme cases, deemed to constitute an employment contract [2.2 Establishing an Employment Relationship and the Contract of Employment], which will result in the application of the mandatory provisions of employment law to protect the employee (the franchisee). Therefore, even if the franchisee operates as a part of the franchiser’s business concept, he/she must be granted a certain degree of entrepreneurial freedom to balance the business risks.