Franchisee independence: who runs the business?

In your own outlets, it may feel natural for every important decision to come to you. When building a franchise network, however, you are bringing independent business owners into your brand, not recruiting more branch managers. Before signing the first agreement, you therefore need to clarify what outcomes head office expects, where it can issue instructions and which decisions rest with the franchisee. Unclear boundaries can lead to operational disputes, uncertainty over liability and an overstretched head office.

1. An independent business is not a company-owned branch

A franchisee follows the shared business concept but operates through their own business. This does not mean unlimited freedom: brand presentation, service standards and the operating methods provided establish a framework to follow. At the same time, receiving regular support or having their performance monitored does not, in itself, make the franchisee an employee of the franchisor.

In practice, independence means being clear about who contracts with customers, who employs the staff and who is responsible for the outlet’s obligations. Stating this in the introduction to the franchise agreement is not enough: invoicing, work organisation and everyday communication must reflect it too.

Review a typical week in your own business. List the matters on which people ask you to decide: approving leave, swapping shifts, handling customer complaints, arranging maintenance or appointing a local service provider. Then mark whether each matter would genuinely require a head office decision in a franchise operation. Matters that come to you simply because you are used to being personally involved as the owner should not automatically become obligations for franchisees to seek approval.

2. Be precise about Hungary’s legal framework

Hungary has no standalone franchise act regulating every aspect of how franchise networks operate. That does not mean franchise agreements are unrecognised in law: Act V of 2013, the Hungarian Civil Code, expressly includes rules on franchise agreements. General contract provisions also apply, including duties to co-operate and provide information.

The Civil Code’s franchise provisions recognise the franchisor’s rights to issue instructions and carry out checks, as well as the need to protect the reputation of the network and its products or services. It would therefore be misleading to say that head office cannot intervene in any operational matter. The task is to define in the agreement the purpose, scope and procedures for exercising its right to issue instructions.

For clauses restricting competition, Act LVII of 1996 and the applicable EU competition rules are also relevant. A statement referring to the franchisee’s independence does not, on its own, make a restriction lawful. Employment arrangements must also take account of Act I of 2012, the Hungarian Labour Code.

There is no general requirement to register specifically as a franchisor, nor is there a standard franchise disclosure document prescribed by law. Business registration and activity-specific registrations may nevertheless be required. The European Code of Ethics for Franchising is a self-regulatory standard, not legislation; its significance may also depend on membership commitments and whether it is incorporated into the agreement.

3. Create a decision-making and responsibility matrix

When preparing the agreement, use a table that identifies, for each recurring task, who makes the decision, who carries it out and who needs to be informed. Do not confuse expert support with decision-making authority: just because head office recommends a solution does not necessarily mean it commissions or pays for it.

Start by addressing the following situations:

• Recruitment: head office may set professional competency requirements, while the franchisee, as employer, selects and hires the employee.
• Shift rotas: the franchisee organises work in line with the agreed service level and employment law requirements.
• Customer complaints: make clear which business is the contracted service provider, who responds and when head office must be involved.
• Repairs and maintenance: distinguish between mandatory technical requirements, the choice of service provider and the authority to commission work.
• Enquiries from public authorities: the business concerned should take action, with head office providing the necessary documents and technical information to support it.

For each row, include a response deadline and arrangements for cover if the responsible person is unavailable. If a matter requires prior approval, make clear what happens if no response is received. Do not automatically treat silence from head office as permission unless the conditions for doing so have been agreed.

4. Keep communication within the agreed role boundaries

Even the best agreement can be undermined if head office staff assign tasks directly to the franchisee’s employees every day. It is sensible to designate a contact person within the franchisee’s business and communicate operational expectations through them. A head office specialist can offer technical guidance, but should not quietly take over decisions that belong to the employer.

Urgent situations require a separate procedure. For a food safety issue, an accident risk or serious harm to a customer, there should be an immediate notification route, clear authority to act and proper documentation. However, the emergency procedure should not become a blanket mandate to centralise all day-to-day decisions.

Before the first franchisee opens, work through a few concrete scenarios together: a shift supervisor is unexpectedly absent, a dissatisfied customer calls head office, or a key piece of equipment breaks down. If the parties give different answers about who decides and who takes action, the rules need further clarification.

Practical takeaway: start with a one-page decision map, then work with a lawyer to align it with the agreement and day-to-day operations. In a strong franchise network, both shared standards and the franchisee’s responsibilities as an independent business owner are clear.