Franchising in the Philippines: Confidentiality Agreements

A franchise brand may ask you to sign a confidentiality agreement before sharing detailed costs, processes or operational records. Protecting trade secrets is reasonable, but the agreement should not prevent proper due diligence. When considering a franchise, you need to be clear about what you must protect, who you may share it with and what happens if you decide not to proceed with the purchase.

1. Identify exactly what must remain confidential

Read the definition of “confidential information”, not just the document’s title. It may cover recipes, manuals, supplier records, operating methods and non-public financial information.

Be wary of a clause stating that everything you hear or see is confidential, even if it has no connection to the business. Ask for the protected categories to be specified, along with how information disclosed only verbally will be identified or confirmed as confidential.

Propose explicit exclusions for information that:

• Was already public when you received it, or became public without a breach of the agreement.
• You legitimately knew before the brand disclosed it.
• You lawfully obtained from someone else who had no duty of confidentiality.
• You developed independently, without using the brand’s confidential information.

These exclusions are terms to negotiate; do not assume they are automatically included. Also keep evidence of the source and date of any information you already hold.

2. Make sure you can consult advisers before buying

There is little point in receiving financial records if you cannot show them to your advisers. Check whether you may share information with the solicitor, accountant and lender you need to consult to assess the offer.

The brand may require disclosure to be limited to what each recipient needs to know, with recipients subject to equivalent confidentiality obligations. Clarify whether you need prior consent for each person or whether it is enough for them to fall within an authorised category.

Your spouse, business partner or prospective co-owner is not automatically included either. If they are involved in the decision, obtain written permission before sending them documents.

Also request a clause allowing disclosures required by law or a court order. Advance notice to the brand may be negotiated where legally permitted, but do not assume that the agreement allows you to disregard a legal order.

3. Distinguish confidentiality from other restrictions

An obligation not to disclose information is different from a restriction on using it in your own business. Both commonly matter, but the permitted use should be clear: for example, solely to assess a potential franchise purchase.

Look for other obligations tucked into the document, such as restrictions on speaking to other brands, a requirement to buy or payments due even if you do not proceed. These should not escape scrutiny simply because the document is called a “confidentiality agreement”.

Also review your liability for accidental disclosure, lost documents and the actions of people with whom you share information. If the agreement specifies a sum payable for a breach, ask a solicitor to review its scope, basis and potential consequences. Do not assume it is automatically unenforceable because the amount is high.

In practice, use separate storage, restrict access and do not post documents in open group chats.

4. Understand the law and the document’s scope

The Philippines has no single comprehensive law covering every aspect of franchising. However, specific rules do apply, including Executive Order No. 169, series of 2022, which provides protections for micro, small and medium-sized enterprises in the franchise sector.

The Civil Code is important for contractual obligations. Under Article 1306, parties may agree their own terms, provided these do not conflict with the law, morals, good customs, public order or public policy.

Republic Act No. 8293, or the Intellectual Property Code, is also relevant. Franchise agreements involving the transfer of systematic knowledge fall within the technology transfer rules, including the prohibited and mandatory provisions in Sections 87 and 88. This does not mean that a separate pre-purchase confidentiality agreement is automatically equivalent to the full franchise agreement; have its actual contents reviewed.

5. Plan your exit if you decide not to proceed

Find out how long the obligations last and whether different periods apply to ordinary confidential information and genuine trade secrets. Also check the process for returning or deleting copies.

If your solicitor or accountant needs to retain a copy to meet professional or legal obligations, negotiate a narrowly defined exception with continuing confidentiality safeguards.

Practical reminder: Before signing, make sure the protected information, permitted consultations, liability and obligations if you withdraw are all clear. Protecting confidentiality should go hand in hand with a proper opportunity to assess what you are buying.