American Bar Association - Forum on Franchising

Maintaining robust data protection and cybersecurity protocols is critical to the development and reputation of international franchise systems. Data breaches disrupt business operations, devastate the goodwill and reputation of a franchise brand, and often result in an inordinate degree of legal liability.

Indeed, in most Canadian jurisdictions, businesses that suffer data breaches are subject to notification and reporting obligations, which include notifying impacted individuals in certain circumstances. To the extent the identity of individuals or their contact information are not known, businesses may need to provide indirect notification, which can include a public broadcast or publication.

Against the backdrop of ever-increasing Canadian data security regulation and scrutiny, it is imperative that international franchisors develop, implement, and effectively manage adequate policies and programs relating to the security of data to ensure that their franchise systems safeguard sensitive information in compliance with applicable legal and regulatory requirements.

Despite the need for better policies and programs, taking such steps involves an increased challenge for franchisors. The franchise business to the harm caused by data breaches because of the independent entities operating and managing the ultimate customer facing businesses trading under the franchisor’s brand, but also requires franchisors to work with their franchisees in implementing and maintaining the appropriate policies and procedures. Moreover, franchisors must foster a culture of data protection and cybersecurity awareness across the franchise system, map out the flow of customer information across the franchise network to identify any security gaps, understand and comply with the applicable legal requirements pertaining to personal information, and ensure that the respective rights and responsibilities of the franchisor and the franchisees are correctly reflected in the franchise agreement, the franchise disclosure document, and in actual practice.

This article was first published in the Summer 2019 edition of the Franchise Law Journal (Volume 39 – Number 1) by the American Bar Association Forum on Franchising. Read the full article here.

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This article 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.