Changes to Franchise Standards: Set the Rules Before Expanding

When you expand an existing business into a franchise network, the way you operate today will not stay the same. There will be new equipment, different software or a refreshed look for your outlets. The key question is therefore not just which standards a franchisee must meet when opening, but also who can change them later, through what process and at whose expense. Set these rules before entering into your first franchise agreement.

1. Distinguish between developing standards and amending the agreement

Within your own business, you can introduce a new procedure through an internal decision. A franchisee, however, is an independent business owner or company, so an instruction from the franchisor does not in itself provide a legal basis for every new obligation. The network needs enough flexibility to develop, but also predictability for the franchisee funding their outlet.

In Slovenia, franchise agreements are not specifically regulated by legislation. There is no dedicated franchising law, mandatory franchise register or statutory franchise disclosure document. Contractual relationships are governed primarily by the Slovenian Code of Obligations (OZ), including the principles of good faith and fair dealing and the prohibition on abuse of rights. Depending on the nature of the changes, rules on competition, personal data protection, intellectual property and the relevant business activity also apply.

The starting point should be clear: as a rule, changes to contractual obligations are agreed jointly by the parties. The agreement may allow certain unilateral updates to standards, but that authority is not unlimited and does not override mandatory legal provisions.

Define three categories of change:

• Operational adjustments: for example, a different sequence of quality checks, with no significant additional costs.
• Significant business changes: new mandatory software, longer opening hours or alterations to the premises.
• Changes to core contractual terms: a higher fee, a different method of calculating it or new payment obligations.

Set a separate decision-making process for each category. Do not use a new edition of the manual to change core terms by the back door.

2. Define the limits and costs of updates in advance

A contractual clause requiring the franchisee to follow ‘all future instructions’ is a poor foundation for long-term trust. Instead, specify the areas in which you will update standards, the permitted purposes of changes and the notification process. These purposes might include safety, regulatory compliance, service quality or maintaining a recognisable brand identity.

Pay particular attention to the relationship between the agreement, its schedules and the manual. State which document takes precedence if there is a conflict, how franchisees receive new versions and where previous editions are stored. Where implementation requires a transition period, distinguish the effective date from the publication date.

For changes requiring investment, answer at least the following questions:

• Who pays for equipment, installation, training and any business interruption?
• Is there an agreed cost limit for changes that do not require further consent?
• How will a recent refurbishment and the remaining term of the agreement be taken into account?
• When might a longer deadline or a technically equivalent alternative be allowed?

Such a cost limit is a matter for agreement, not a statutory threshold for franchises. Tailor its level and application to the economics of your business model, rather than relying on a generic contract template.

3. Support every major change with an implementation plan

Before requiring all outlets to introduce something new, prepare a short change proposal. Explain the problem, the expected benefit, the tasks involved and the total estimated cost. Distinguish established findings from expectations: faster order processing does not necessarily guarantee revenue growth.

Consider replacing your point-of-sale software. Buying the licence is only part of the cost. A franchisee may need new hardware, data migration, integration with accounting software and staff time for training. Also specify who will help if something goes wrong and how the outlet will operate if implementation does not go to plan.

Where a change involves customer or employee data, check the obligations under the General Data Protection Regulation (GDPR) and Slovenia’s Personal Data Protection Act (ZVOP-2). Using shared software does not in itself give the franchisor a right to unrestricted access to all personal data.

Present the proposal to franchisees in good time and record their comments. Consultation does not necessarily confer a right of veto, unless this has been agreed, but it often reveals costs or technical obstacles that head office has overlooked. The final notice should identify the person responsible, the deadline, the implementation support available and how completion will be checked.

4. Set out exceptions, urgent measures and dispute resolution

A uniform standard does not always require a uniform timetable. An outlet in rented premises may need the landlord’s consent for alterations, while another may have only just bought equipment that remains fit for purpose. Provide for written requests for an extension, decision-making criteria and a response deadline. Document exceptions so that they do not depend on personal relationships.

Make separate provision for urgent changes required for safety or legal compliance. The usual transition period may be inappropriate in these cases, but the reasons, scope of the measure and allocation of responsibilities must still be clear. Contractual arrangements cannot postpone a mandatory statutory deadline.

If a franchisee objects to a change, the process should first allow for a written explanation, a review of the contractual basis and a meeting. Do not assume that every delay is grounds for a contractual penalty; check the agreed obligations and the circumstances.

Practical takeaway: before your first expansion, prepare a table setting out the types of change, decision-making authority, costs and deadlines. Then ask a lawyer to check whether the agreement actually supports these arrangements. This makes the development of the franchise network a planned process, rather than a surprise for franchisees.