Buying a franchise: check the confidentiality agreement

Before a franchisor shows you its manual, detailed financial calculations or internal procedures, it may ask you to sign a confidentiality agreement. Protecting know-how is an understandable part of working within a franchise network, but this document is not merely a formality. It can create obligations that continue even if you never buy the franchise. Before signing, check what you must protect, who you may share information with and what happens when negotiations end.

1. Define what is confidential and how it may be used

A confidentiality agreement, often called a non-disclosure agreement or NDA, should clearly define the permitted use of the information: assessing a specific franchise offer. This allows you to review the material, but does not give you permission to use the procedures disclosed to set up your own competing business.

Check whether the agreement covers only the documents supplied or also oral presentations, emails, visits to an outlet and your own notes. For oral disclosures, it is useful to agree a process for confirming in writing afterwards which information was confidential. Otherwise, it may be difficult to establish which information falls within the agreement at all.

Pay particular attention to the exceptions. Propose that the obligation should not cover information that:

• is lawfully available to the public;
• you can prove you already knew before it was disclosed;
• you lawfully receive from another source without a duty of confidentiality;
• you develop independently, without using the material received.

Do not lightly sign a statement saying that absolutely everything you learn about the brand is confidential forever. Equally, the absence of a ‘confidential’ label does not mean you may freely circulate a document. Its content, the circumstances of disclosure and the applicable law all matter.

2. Allow for review by your lawyer, accountant and bank

An agreement that prohibits all sharing with third parties may prevent the very review for which you need the material. Before signing, establish whether you may show it to your lawyer, accountant, tax adviser and any potential finance provider.

Do not settle for a general assurance that ‘sharing with advisers will not be a problem’. The document should specify the permitted recipients, the purpose of their access and their confidentiality obligations. Clarify whether you need prior written consent for each recipient and whether you are liable for their breaches.

Apply a need-to-know approach: each recipient should receive only what they need for their task. To assess a finance application, a bank may need financial projections and the agreement, but not the entire operations manual. Do not send documents to group email addresses or upload them to publicly accessible online tools.

Also agree a procedure for disclosures required by law or a competent authority. Any requirement to notify the franchisor in advance should apply only where legally permitted. Contractual confidentiality must not be presented as a prohibition on meeting legal obligations.

3. Understand Slovenia’s legal framework and the consequences of a breach

Slovenia has no dedicated franchising law, compulsory franchise register or specifically prescribed pre-contractual disclosure document. Signing a confidentiality agreement therefore does not, in itself, guarantee that you will receive all the information needed to decide whether to buy.

The Slovenian Obligations Code (Obligacijski zakonik, OZ) is relevant to negotiations and contractual obligations, including the principle of good faith and fair dealing and the rules on liability during negotiations. Trade secrets are protected under the Trade Secrets Act (Zakon o poslovni skrivnosti, ZPosS). Among other things, this considers whether the information is secret, whether it has commercial value because it is secret, and whether its holder has taken reasonable steps to protect it. Simply labelling information as confidential in a contract does not mean that it meets the statutory requirements for a trade secret.

The contractual scope of confidentiality may be broader, so ask a lawyer to check both levels of protection. A franchise association’s code of conduct is no substitute for the law or a review of the specific agreement.

Pay particular attention to contractual penalties. Check what triggers a penalty, whether it applies to each document or individual disclosure, and how its relationship with any damages is governed by the agreement and the law. Do not rely on the possibility of a court later reducing a disproportionate penalty: a dispute brings additional uncertainty and costs.

4. Agree how negotiations will end before they begin

The agreement should distinguish between the duration of negotiations and the duration of confidentiality obligations. Longer protection may be justified for know-how that remains a trade secret, but the same arrangements will not necessarily suit every category of material.

If you reject the offer, you need to know which documents to return or delete, by when, and how to confirm that you have done so. Clarify how to handle backups, your own analyses and material that advisers must retain to meet legal or professional obligations. Any archival copies should remain protected and unavailable for business use.

Also check whether the document includes additional obligations under the heading of confidentiality, such as exclusive negotiations, a ban on contact with other brands or a commitment to buy. These require separate assessment. If you are also disclosing your own financial information or business plan, propose appropriate mutual protection.

Practical takeaway: before any material is disclosed, agree a clear purpose for its use, access for advisers, understandable consequences of a breach and a workable process for ending negotiations. Confidentiality should enable secure due diligence, not replace it.