Franchising in Canada

3.4 billion people are active users of social media. The average daily time spent on social media is 116 minutes. The number of social media users has grown by over 300 million in the past 18 months, with a new social media user being added every 10 seconds. Franchise systems are increasingly taking advantage of social media to promote their products and services, to engage with customers and build customer loyalty, and to remain competitive.

In leveraging social media to their advantage, franchisors must be mindful to implement strategies that protect their brand, guard against potential liabilities, and maximize franchise system functionality. Maintaining such strategies will also serve to increase franchise system value, which will be advantageous for future exit transactions. In this post we discuss certain risks that franchisors face in using social media and recommendations to reduce those risks.

Legal Issues

Critically, franchisors can face civil and criminal liability if they or (in certain cases) their franchisees fail to comply with applicable laws when using social media. Defamation, breaches of privacy, infringement of intellectual property rights, discrimination, and misrepresentations are but a few of the calamities that can plague an unsuspecting franchisor. The straightforward act of re-posting a “meme” – which may be tolerated in the social context – can constitute third party intellectual property infringement.

Best Practice Recommendations:

Be circumspect in selecting social media platforms, choosing only those that best suit the franchise system, and be intentional about formulating purposes and guidelines for use.

Ensure that all social media content and interaction for the purpose of marketing franchise units is scripted, complies with laws (particularly misrepresentation), and is consistent with the franchisor’s franchise disclosure document.

Franchise agreements must contain clear and robust provisions setting out the allocation of rights, responsibilities, and risks for social media accounts as between the franchisor and its franchisees (including compliance with laws).

Social Media Policy

One threshold question that franchisors must answer is whether they will either: (i) maintain sole control of all social media accounts relating to the franchise system, (ii) permit franchisees to use one or more social media accounts, or (iii) adopt a combined approach (eg, where a franchisor maintains high level control, but permits limited participation rights to franchisees). Social media’s instantaneous nature and potentially massive audience can significantly damage the brand and reputation of a franchise system in a matter of moments.

Best Practice Recommendations:

Ensure that franchise agreements clearly set out (in sufficient detail) the rights reserved by the franchisor with respect to social media, the specific rights granted to franchisees, the scope of permitted activities, and the controls imposed.

Develop a well-crafted social media policy (comprised in the operations manual) to equip and prepare franchisees addressing matters such as: (i) social media etiquette, (ii) protection of confidential information, and (iii) appropriate and inappropriate content etc.

It is critical that franchisors also aptly address the use of social media by the employees of their franchisees. Having said that, this must be done delicately so as not to create potential liability through common employer classification.

Training, Management and Monitoring

Implementing the above recommendations, while prudent, is no panacea. Franchisors who fail to train, manage, and monitor their staff and their franchisees with respect to the use of social media expose themselves to increased risk. The unfortunate reality is that franchisors often lack the time, human capital, and other resources to commit to these important activities. Monitoring the use of social media across a franchise system alone can be a formidable and immensely time-consuming task.

Best Practice Recommendations:

LiceSquad.com’s CEO, Dawn Mucci, prepares training videos to teach the appropriate use of social media which ensures consistent messaging and saves time and other resources. Webinars can be used for further training on leveraging changing trends, addressing known concerns, and dealing with emerging issues.

Training franchisees to proactively address negative comments and criticism on social media can be particularly challenging. Fraser Clarke, CEO of Massage Addict, has had success in teaching franchisees to take the conversations offline and to deal with complaints through direct one on one dialogue.

Justin Livingston, Vice President of Franchise Development at OCG, states that their protocol includes a requirement that franchisees obtain pre-approval for all content before release.

Engage a consultant with the right expertise and resources. Laura Fracassi, Founder of Blue Door Communications, says there are numerous software applications that can streamline everything from content pre-approval processes to international media monitoring.

Enforcing policies is essential for maintaining the health and value of a franchise system (and promotes future compliance). Simon McNamara, CEO of Bounce, recommends that franchisors maintain “admin” rights to all franchisee social media accounts to facilitate efficient and effective responses to non-compliance.

As a final point, it is worth mentioning that a solid crisis communications plan for dealing with social media criticism and crises is critical, particularly in addressing an unexpected and sudden disaster. Lack of restraint or improper action taken in a crisis can create more liability than may have existed in the first place. Importantly, practices like posting under fictitious names and incentivizing individuals to post positive reviews or ratings solely for combating negative comments fall within the ambit of unfair and deceptive trade practices.

While a franchisor cannot foresee every possible permutation or calamity associated with the use of social media within its franchise system, implementing the above recommendations will help guard against potential negative implications. 

To receive further information or resources on franchising in Canada, please email me. Stay tuned for our next post in the Franchising in Canada Series.

This post is published to inform clients and contacts of important developments in the field of franchise and distribution law. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a McMillan lawyer if you have specific questions or concerns relating to any of the topics covered here.

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