Allocating Responsibility for Customer Complaints in a Franchise

When a business is owner-operated, the owner usually makes decisions about replacements or refunds directly. Once it expands into a franchise network, those decisions involve two parties with separate accounts and different levels of authority. Before offering the business to prospective franchisees, establish how responsibility for customer complaints will be shared so that service is not held up and the cost of resolving complaints does not become a source of disputes.

1. Separate customer service from cost allocation

Customers need a resolution, not a lengthy explanation of the relationship between franchisor and franchisee. Distinguish between two decisions: who helps the customer first, and who ultimately bears the cost.

The outlet where the transaction took place can be designated as the first point of contact for complaints. However, the cost of resolving a complaint should not automatically fall on that outlet. A serving error by outlet staff is different from an error in instructions for use prepared by head office.

Draw up a simple list of scenarios before drafting contractual clauses:

• Operational errors at the outlet: mixed-up orders, service below the required standard or incorrectly stored products.
• Shared system errors: inaccurate product information in an app or a head-office promotion that cannot be honoured.
• Product or ingredient issues: substandard quality, damaged packaging or a suspected safety hazard.
• Cross-outlet cases: a customer buys at one location, then seeks help at another.

For each category, specify who receives the complaint, who makes the decision, who provides the remedy and who covers the cost initially. Use evidence to determine the final allocation of costs, rather than simply assigning them to the outlet that received the complaint.

2. Put the arrangements within the right legal framework

Government Regulation No. 35 of 2024 on Franchising is the main regulatory framework for franchising in Indonesia, replacing Government Regulation No. 42 of 2007. It establishes that franchise relationships must be based on an agreement in which the parties have equal legal standing and which is governed by Indonesian law.

The regulation also requires the franchise offering prospectus to be provided at least 14 calendar days before the agreement is signed. If the complaints procedure creates financial obligations for prospective franchisees, explain those obligations in the disclosure of rights and obligations and in the draft agreement. Do not introduce them for the first time as deductions from payments once the outlet is operating.

Alongside franchise regulations, Law No. 8 of 1999 on Consumer Protection is relevant to customer service. It sets out business operators’ obligations and liability for compensation in circumstances specified by law. Cost-sharing arrangements between franchisor and franchisee must not be used to remove consumer rights or avoid applicable obligations.

Also distinguish between clauses governing the franchise relationship and customer terms of service. An internal agreement that an outlet will bear a particular cost does not, in itself, release another party from legal liability. Have both sets of terms legally reviewed, especially if the business offers food, healthcare services or products with safety risks.

3. Create a workable authority matrix

Outlet staff need to know what they can do without waiting for the brand owner’s approval. Equally, customer service staff should not decide high-risk cases on their own.

Create a matrix with four columns: complaint type, initial action, limits of authority and escalation route. For example, the person in charge of an outlet may be authorised to correct a mixed-up order immediately after checking proof of purchase. Suspected injury or contamination must be referred immediately to the designated person responsible for safety.

For each route, specify:

• the timeframe for an initial response and subsequent updates;
• the minimum evidence to be recorded;
• the remedies that can be offered;
• who is authorised to approve exceptions;
• who takes over when the main person responsible is unavailable.

Set internal targets based on actual capacity, rather than making promises that are difficult to keep. Do not confuse response time with resolution time: quality checks may take time, but customers still need progress updates.

In safety-related cases, prioritise protective action and the preservation of evidence. Disputes over costs must not delay the necessary response.

4. Explain payment and reimbursement arrangements in the agreement

The agreement should set out the principles for allocating costs, while detailed service steps belong in operating procedures. This separation helps teams distinguish commercial obligations from practical instructions.

Specify who pays the customer initially, which documents are required to request reimbursement, the deadline for submitting a claim and how rejected claims will be handled. If the cause is not yet known, establish an interim funding arrangement and a process for determining responsibility after investigation.

Avoid clauses allowing unilateral deductions without an explanation. Each charge should be supported by a case reference, the grounds for the decision, evidence of the costs and an opportunity for the franchisee to respond.

For example, an outlet might replace a customer’s product because storage instructions issued by head office turn out to be incorrect. The outlet can help the customer first, then seek reimbursement through the agreed process. This is an example of an operational arrangement, not an automatic determination of legal liability.

5. Test the process before recruiting franchisees

Run simulations using complaints that have arisen in your own business. Test a straightforward case, a cross-outlet case and a case that occurs when the person responsible at head office is unavailable. Check whether staff know what to do next without having to contact the founder for every decision.

Record bottlenecks: an approval process that takes too long, evidence that is difficult to obtain or unclear payment authority. Refine the process before including it in your franchise package. Across a franchise network, consistent service requires rules that franchisees can put into practice, not just rules the business owner understands.

Practical step: prepare one complaints matrix, one complaint record form and one reimbursement process before offering franchises. Make sure all three align with the agreement and continue to protect customer rights.