Franchising and e-commerce: agree your franchisees’ sales rights

When you turn an established business into a franchise network, your existing online shop is no longer just your own sales channel. It may generate orders for franchisees, compete with them or combine both approaches. Before signing your first franchise agreement, decide who sells online and on what terms franchisees may reach customers. An unclear e-commerce model can cause disputes before the first outlet even opens.

1. Decide who contracts with the customer

Start by mapping the order journey in your existing online shop. Who receives the order, confirms the sale, receives payment and supplies the product or service? Within your own business, these tasks may blend together. In a franchise network, they may be split between different businesses, so customers must also be able to see who is responsible for what.

Choose your operating model deliberately. For example, the network’s shared website could work in the following ways:

• The franchisor sells to the customer and buys a delivery or fulfilment service from the local franchisee.
• The local franchisee is the seller, and the shared online shop passes the order to them.
• The website collects enquiries, but the sale is concluded later with the franchisee.

You can combine these models, but customers must understand which business they are dealing with. A shared trade mark alone does not determine who the contracting party is. The seller’s identity and other required information must be presented appropriately before an order is placed.

Write a one-page description of each order journey. Identify the seller, the payment recipient, the business fulfilling the order and the customer service contact. If you cannot describe the journey unambiguously, do not introduce it to a new franchisee yet. Your accounting and payment processes must also match the chosen model.

2. Distinguish quality standards from prohibited sales restrictions

Finland has no separate franchising act, no specific requirement to register franchise agreements and no statutory franchise disclosure document in a prescribed format. Agreements are governed by general legislation, including the Finnish Contracts Act and Competition Act. Online sales to consumers are also subject to the Finnish Consumer Protection Act, including the distance-selling provisions applicable to the situation.

EU competition rules are also central to assessing restrictions on online sales. The Vertical Block Exemption Regulation (EU) 2022/720 and the accompanying European Commission guidelines provide an important framework for assessment. The block exemption does not automatically approve every term imposed by a franchise network: its application depends, among other things, on market shares and the restrictions contained in the agreement.

A franchisor may set justified quality standards for online shops, for example on the accuracy of product information, image quality and customer service arrangements. By contrast, a term that effectively prevents a franchisee from using the internet to sell products or services may constitute a serious restriction of competition. What matters is the term’s effect, not simply its heading.

So do not start with the statement, “all online sales belong to the franchisor”. First establish which franchisee activities you intend to restrict and why. Terms governing a franchisee’s own online shop, online marketplaces and online advertising are not legally equivalent. The distinction between active and passive sales may also affect the assessment. Have the arrangements reviewed as a whole by a lawyer specialising in competition law.

The Finnish Franchising Association’s Code of Ethics, meanwhile, is a form of self-regulation binding on its members, not legislation. It does not replace a legal assessment of your e-commerce terms.

3. Agree how orders are allocated and work is paid for

A shared online shop needs a predictable way of allocating orders. Otherwise, a franchisee may have to set aside staff time for online orders without knowing whether they will receive sales revenue or merely a handling fee. A seamless service for customers must not mean uncertainty over earnings for franchisees.

Define at least the following:

• Does the customer choose the outlet fulfilling the order, or does the system suggest one?
• Can a franchisee decline an order because of capacity or availability?
• Who receives payment, and when is the franchisee’s share paid to them?
• How are collection, delivery, returns handling and other local tasks remunerated?
• What happens if an order is split between several outlets?

Test the division of responsibilities against practical scenarios. If a customer pays the franchisor for a product but collects it from a franchisee’s stock, agree both how that stock is accounted for and what payment the franchisee receives. If the customer changes the collection point, order and payment processing must reflect that change too.

Keep the technical routing of orders separate from restrictions on a franchisee’s sales rights. Using postcodes to route deliveries does not, in itself, determine whether a franchisee may serve an online customer from another area who approaches them on their own initiative. Contract terms must be assessed as a whole, and system settings must not impose a restriction that could not lawfully be included in the agreement itself.

4. Make your e-commerce arrangements testable

Set out the e-commerce model’s key rights and obligations in the agreement. These include the seller’s role, the franchisee’s right to make their own online sales, the terms for using the shared service and the principles governing payment for order handling. Practical steps can be described in an operations manual, but a franchisee’s essential rights should not depend solely on system settings.

Test the order journeys in your existing business before introducing them to a franchisee. Place a test order, submit an order that exceeds capacity, cancel an order and change a collection point. At each stage, check what the customer sees and what information the business fulfilling the order receives. Also track the staff time spent processing orders so that payments reflect the work actually involved.

Walk prospective franchisees through the model before they commit. Show them which online orders count as their own sales and when they are fulfilling an order on behalf of another business. Also explain which arrangements are already in place and which are still being planned.

Practical summary: first map the order journey, then agree the payment flows, and finally have the online sales restrictions reviewed. An effective online shop strengthens a franchise network only if customers can identify the seller and franchisees understand their rights.