Franchisee independence: who makes operational decisions?

Expanding an established business into a franchise network changes not only the number of outlets, but also how the business is managed. The owner can no longer assign tasks to every partner as though they were employees. Franchisees operate in their own name and for their own account. For a shared brand to work, you need to allocate decision-making authority before recruiting partners: what must be consistent, where consultation is enough, and what remains entirely up to the operator.

1. Separate shared standards from running someone else’s business

At a company-owned branch, you can routinely make decisions about shifts, recruitment and day-to-day spending. Applying this approach unchanged to a franchisee is a mistake. They gain the right to use your business concept, but do not become an employee of head office or simply a manager of your assets.

Head office should ensure the concept can be replicated consistently, rather than automatically taking over every business decision. For each requirement, ask yourself: is it essential to a consistent customer experience, safety or brand protection? If not, consider whether it is merely a personal habit of the founder.

Staffing illustrates the distinction well. The concept may require customers to be served by trained staff and to receive a service of a specified quality. However, choosing individual employees, setting their pay and organising their work generally fall to the franchisee as their employer, subject to employment law.

List the decisions you currently make as a founder during a typical week. Include the small things: arranging repairs, approving a local event or covering for an employee who is off sick. These are often where dependence on your personal management is hidden.

2. Create a simple decision-making framework

Assign each decision to one of four categories: mandatory standard, prior approval from head office, consultation, or an independent franchisee decision. There is no need to create a complex organisational structure. What matters more is that both parties understand the same situation in the same way.

A working framework might include:

• Outlet appearance: head office specifies mandatory brand elements; the partner chooses how to implement them within the permitted parameters.
• Local marketing: the partner plans the activity; approval is required only where it affects the rules governing use of the brand.
• Staffing: the partner makes employment decisions; head office sets requirements for knowledge of the concept’s operating procedures.
• Routine maintenance: the partner arranges repairs; changes to equipment that affect the service provided may require approval.
• Urgent safety issues: the operator takes the necessary action immediately, then informs head office in line with the agreed procedure.

For each approval process, specify who is responsible, what supporting information is needed and the deadline for a response. Also set out explicitly what happens if head office fails to respond. A partner must not be left unable to act simply because the person authorised to decide is on holiday.

Avoid wording such as ‘all significant matters require head office approval’ without explaining what it means. Each party may interpret ‘significant’ differently. Specific categories of decisions and a clear procedure for unusual cases are more useful.

3. Respect the limits of Czech law

The Czech Republic has no dedicated franchising legislation. Franchise agreements are generally concluded as contracts not specifically defined by law under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Nor is there a specific registration requirement or a legally prescribed disclosure document for franchise agreements. However, general pre-contractual disclosure obligations and the requirement to act in good faith still apply.

The allocation of authority therefore rests primarily on the agreement, but freedom of contract is not unlimited. Czech and EU competition law also apply, notably Act No. 143/2001 Coll., on the Protection of Competition, and, depending on the circumstances, Article 101 of the Treaty on the Functioning of the European Union. A shared brand does not, in itself, entitle head office to dictate all of a partner’s commercial decisions. Restrictions on selling prices, customers or competing activities are particularly sensitive, for example, and require a separate legal assessment.

If a franchisee employs staff, they are subject to the Labour Code, Act No. 262/2006 Coll. Head office should communicate operational requirements to the partner’s designated representative, rather than routinely dealing with the partner’s staff as though it were their employer.

The European Code of Ethics for Franchising can serve as a guide to fair relationships within a franchise network. However, it is not Czech law and does not replace an assessment of the specific contractual provision.

4. Test the allocation against everyday situations

Before offering the concept to prospective partners, review the decision-making framework with someone who was not involved in creating it. Give them several scenarios: an equipment breakdown, a proposal for a local collaboration, a staff absence or a request to alter the interior. In each case, they should be able to identify who decides and whether operations can continue without head office approval.

Pay particular attention to cases where the answer is ‘we’ll call the owner’. If most everyday situations require this step, the concept still depends on personal management rather than a clear allocation of responsibility. Revise the decision-making authority, rather than simply adding more telephone contacts.

Practical takeaway: Before offering your first franchise, create a one-page decision-making framework. Every restriction on a partner must have a clear purpose, every approval process a named person responsible, and every routine operational situation a workable procedure.