Remedying Breaches of a Franchise Agreement

Before franchising your existing business, establish not only your standards but also a process for putting things right when those standards are not met. Reports may arrive late, the wrong materials may be used in an outlet, or a required procedure may be skipped. Within a franchise network, it is important to have a system that provides clear notice and a fair opportunity to remedy problems—without compromising safety or accountability.

1. Distinguish a breach from a failure in the system

It is not enough to say that a franchisee is failing to comply. First, identify the precise obligation that has not been met and where it is set out: in the agreement, the manual or a policy that has been properly communicated. Make sure the version used for the assessment is the same one the franchisee received.

Before issuing a notice, answer these questions:

• Are the required action and deadline clear?
• Have the necessary equipment, training or authorisations been provided?
• Is there documented evidence that the obligation has not been met?
• Has any failing on the franchisor’s part affected compliance?

For example, if a weekly report was not submitted because the system you provided was not working, it would be unfair to treat this immediately as deliberate non-compliance. Address the cause first and arrange a temporary method of submission.

As you prepare your business for franchising, test this process in a company-owned outlet. Ask the manager to assess whether the written instructions are sufficient to identify and remedy a shortcoming without having to guess what the owner wants.

2. Align the process with the contract and the law

A specific regulation needs to be considered in the Philippines: Executive Order No. 169, series of 2022. It sets out safeguards for micro, small and medium-sized enterprises that take on franchises, including mandatory provisions in agreements covered by the order and registration of agreements with the Department of Trade and Industry (DTI). These provisions include the grounds for and consequences of termination, as well as a dispute resolution mechanism.

This does not mean there is a single, automatic remedy period for every type of breach. Ask a lawyer to review the scope of the order, current DTI rules and the contract itself before establishing a remedial process.

The Civil Code is also relevant to the validity and performance of contracts. Do not introduce penalties or rights of suspension without a proper basis. Where use of the brand is at issue, the Intellectual Property Code, Republic Act No. 8293, may also be relevant.

The QFA Code of Conduct requires members to give written notice of a breach and allow a reasonable period for it to be remedied. This is a voluntary association’s standard, not a law that automatically applies to everyone. Nevertheless, it provides a useful benchmark for fair dealing.

3. Prepare a notice that can be acted upon

A good notice is not a threat. It should explain what happened, what needs to change and how completion of the remedial action will be verified.

Prepare a template containing the following:

• Specific incident: the date, outlet and observations supported by records.
• Basis: the relevant provision of the agreement or standard in the manual.
• Required remedial action: concrete steps whose completion can be verified.
• Deadline: a clear date, rather than simply “immediately”.
• Response procedure: the person to contact and documents to submit.
• Next steps: action consistent with the contract if the breach is not remedied.

For example, instead of saying “sort out the reports”, specify which reports are missing, which format to use and where to send them. Also give the franchisee an opportunity to explain or present evidence to the contrary.

Serve the notice using a method recognised by the contract. Keep proof of sending and receipt; do not assume a message has been read simply because it was posted in a group chat.

4. Set the remedy period and close the matter clearly

Allow a period for remedial action that reflects the risk, the scope of the work and what the franchisee can reasonably achieve. Correcting an inaccurate report is different from replacing equipment that must be delivered from elsewhere. If you grant an extension, record the reason and the revised deadline.

Where there is an immediate risk to health or safety, urgent action may be needed in accordance with the law and the contract. Do not use the normal remedial process as a reason to let dangerous practices continue.

Assign someone to review the evidence of remedial action. Once the requirements have been met, send written confirmation that the specific matter is closed. If the response remains inadequate, identify the outstanding shortcomings rather than adding new standards without explanation.

Practical reminder: Before offering a franchise, prepare a notice template, a deadline tracker and a verification process. A clear approach to remedying breaches protects both standards and trust within the franchise network.