How Businesses in China Should Allocate Responsibility for Consumer Complaints and Compensation Before Franchising

At a company-owned outlet, the owner may be able to resolve a complaint on the spot. Once a business moves into franchising, however, responsibilities become more complex across head office, outlets and suppliers. If consumers are repeatedly passed from one party to another, even minor problems can undermine trust across the franchise network. Before launching a franchise operation, businesses should test how complaints will be received, resolved and compensated, rather than simply inserting a clause stating that ‘the franchisee is responsible’.

1. Separate liability to consumers from internal cost allocation

Article 11 of China’s Regulations on the Administration of Commercial Franchising expressly requires franchise agreements to cover ‘the protection of consumer rights and interests in franchising and the allocation of liability for compensation’. Article 15 also requires the quality and standards of products or services to comply with laws, administrative regulations and relevant national provisions. A consumer complaints process is therefore not an optional customer-service courtesy: it is an important part of contractual and operational preparation.

Consumer rights are also governed by legislation including the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests. Head office and franchisees may agree how to cooperate and share costs internally, but those arrangements cannot exclude consumers’ statutory rights. Nor can an internal agreement alone establish that head office or an outlet is always exempt from liability. Liability must still be assessed against the parties to the transaction, their actual conduct and the applicable law.

When preparing to franchise, establish who sells to the consumer, receives payment, issues invoices, provides after-sales support and manages order records. This is particularly important where orders are placed online and fulfilled by an outlet. Set out these details in an internal responsibility matrix, and ensure consumers can identify the business actually operating the outlet or service and find an effective contact channel.

2. Use complaint-handling exercises in company-owned outlets to define authority

Avoid imposing a blanket rule that ‘all complaints must be submitted to head office for approval’. This can leave even straightforward refunds waiting for a decision. Instead, select typical cases from the complaint records of company-owned outlets, anonymise them and use them in practical exercises. Examples include goods that do not match their description, services not delivered as agreed, duplicate charges and complaints that may involve personal injury.

Triage complaints according to risk, rather than how upset the consumer appears:

• Routine after-sales issues: where the facts are clear and the remedy is established, the outlet should act within its delegated authority.
• Unclear responsibility: where a complaint involves head-office marketing, system-generated charges or the quality of supplies, a designated person should coordinate the investigation while the outlet remains in contact with the consumer.
• Serious risks: where personal safety, suspected problems affecting a wider batch or regulatory intervention are involved, escalate immediately and take any measures required by law. These cases must not wait for routine approval processes.

The exercise should record when the complaint was received, when the first response was given, when the necessary information was gathered, when the remedy was agreed and when the case was actually resolved. Businesses can set internal response targets based on their capacity, but should make clear that these are management standards, not uniform statutory deadlines. They must not replace applicable legal obligations.

One question deserves particular attention: if the outlet manager is absent or the head-office lead is on leave, does someone else still have authority to act? Without cover arrangements, the process is not yet ready to be rolled out across a franchise network.

3. Put compensation authority and internal settlement arrangements in a contract schedule

A schedule to the franchise agreement should answer three questions: which remedies may the outlet authorise itself, which circumstances require escalation, and how reasonable costs already paid will be allocated internally. Delegated authority should specify not only financial limits, but also the circumstances in which it applies and prohibited practices. For example, consumers must not be required to waive statutory rights to receive after-sales support to which they are already entitled.

Cost allocation can follow an investigation process based on the cause of the problem. Specify who investigates outlet operating errors, who puts matters right when head-office marketing does not match the service delivered, and how evidence of supply-quality problems will be preserved and costs recovered from the relevant parties. Where several causes are involved, agree a joint investigation process and provisional accounting arrangements so that arguments over cost-sharing percentages do not delay resolution for the consumer.

If one party is expected to take initial action or pay costs upfront, set out the triggers, the person authorised to approve action, the evidence required, settlement milestones and a route for raising disputes. Taking initial action should not automatically be treated as an admission of full legal liability by that party.

The Regulations on the Administration of Commercial Franchising also require the prescribed information and the contract text to be provided in writing at least 30 days before signing. Arrangements for complaints cooperation, compensation cost-sharing and head-office support should be consistent across the proposed agreement, operating manuals and legally required disclosures. A business should not promise during franchise recruitment that ‘head office will cover everything’, only to transfer all responsibility to outlets after signing.

4. Maintain a complaints register that supports resolution and review

Each complaint should have a unique reference number and a clearly designated case owner. Records should cover the order, the problem reported, the evidence used to verify it, the proposed remedy, consumer feedback, payments actually made and the status of internal settlement. Collect only the personal information needed to handle the complaint and restrict access. Do not circulate consumers’ contact details or sensitive information in unrelated work chat groups.

Distinguish between two completion points: whether the consumer’s issue has been resolved, and whether head office and the franchisee have settled costs between themselves. Outstanding internal cost recovery should not be used as a reason to refuse to carry out an agreed remedy. Equally, a consumer who has not yet replied should not simply be recorded as ‘satisfied’.

Regularly review the causes of recurring complaints. If several outlets face disputes over the same promise, examine head-office marketing and training. If errors cluster around a particular operating step, revise the process and check whether the changes work, rather than merely penalising the employee who received the complaint.

Practical takeaway: Before opening franchise recruitment, run a complete exercise to check that someone receives the complaint, has authority to act, keeps records and can settle the costs. Consumers should receive clear, continuous support without having to understand the internal structure of head office and its franchise outlets.