The franchise agreement: planning an exit from the network

When expanding an existing business into a franchise network, the end of the relationship is probably the last thing you want to think about. Yet a clear exit plan protects the brand, customers and both business partners. Before signing the first agreement, set out what happens when it expires, when a breach occurs or when the parties agree to part ways. The aim is not to make leaving difficult, but to prevent a business separation from bringing operations to a halt.

1. Start with Slovenia’s legal framework

Slovenia has no dedicated franchising law, and franchise agreements are not specifically regulated as a distinct type of contract. Nor is there a mandatory franchise register or a statutory franchise disclosure document. This does not mean the relationship is unregulated: the Slovenian Obligations Code (OZ) is particularly important, including its principle of good faith and fair dealing and its rules on the performance, breach and termination of obligations.

The parties have considerable contractual freedom, but their agreement must not conflict with the constitution, mandatory legal provisions or moral principles. Depending on the issues involved, the Trade Secrets Act (ZPosS), the Industrial Property Act (ZIL-1) and personal data protection rules, particularly the General Data Protection Regulation and Slovenia’s Personal Data Protection Act (ZVOP-2), may also be relevant to an exit.

The European Code of Ethics for Franchising is a self-regulatory framework, not Slovenian law. It can help shape a fair relationship, but it does not replace a legal review of the agreement. A franchisee generally operates as an independent business; its obligations to consumers do not disappear when the franchise relationship ends.

2. Distinguish between expiry, termination on notice and termination for breach

The phrase ‘ending the agreement’ is not precise enough for practical purposes. Draft separate provisions for the different ways the relationship can end, specifying the trigger, notification procedure, timeframe and consequences for each.

• Expiry of the agreed term: specify whether the agreement ends without further notice, how renewal discussions begin and whether renewal depends on certain conditions being met.
• Termination on notice: if this option is available, clearly state who may exercise it, the notice period and the obligations during the transition.
• Termination for breach: describe material breaches, the warning procedure and the opportunity to remedy a breach where required by law or the agreement.
• Termination by mutual agreement: allow for a written agreement covering the end date, settlement of outstanding obligations and operational handover.

Do not apply the same response to a late report as to an unauthorised disclosure of a trade secret. Provisions should be proportionate, specific and legally reviewed. The agreement should also state where notices must be served and how receipt is to be evidenced.

If you envisage the sale of a unit to another partner, also set out the procedure for approving the buyer. Selling equipment or a company does not necessarily amount to an authorised transfer of franchise rights.

3. Plan for customers, stock and branding

The biggest problems often arise not from the termination date itself, but from unfinished business. Develop the exit plan alongside the agreement, rather than waiting for the first dispute.

Assign responsibility for each category of outstanding obligations: who will complete orders, handle complaints, deliver services already paid for and explain whether gift vouchers remain valid? An internal agreement between the partners does not, in itself, remove customers’ rights or transfer all obligations to another business. Any assumption of those obligations requires appropriate legal arrangements.

For stock, agree in advance whether any buy-back is envisaged, which products it covers and how their condition, remaining shelf life and price will be assessed. Do not promise an automatic buy-back of everything if your business cannot afford to honour it.

Draw up a separate inventory of physical and digital branding: signs, uniforms, packaging, websites, social media profiles and online directory listings. Specify the deadline for removal, who pays and what evidence of completion is required. Customers must be able to tell when a former unit is no longer part of the franchise network.

4. Address know-how, access and personal data

Simply requiring ‘the return of all documentation’ when the relationship ends is not enough. Prepare a list of manuals, internal price lists, recipes or formulations, training materials, devices and user accounts. Distinguish between property belonging to the franchisor, materials licensed for use and business records the franchisee is legally required to retain.

Trade secret protection should also rely on practical measures: restricted access, confidential markings on materials and a documented handover. A blanket contractual label alone does not ensure that every piece of information meets the legal criteria for a trade secret.

Do not assume that the entire customer database automatically belongs to the franchisor. First establish the parties’ data-processing roles, the legal basis for any transfer and the applicable transparency obligations. Then specify which data must be returned, deleted or retained. Coordinate the withdrawal of system access so that it does not prevent outstanding orders from being handled lawfully or records from being retained as required by law.

5. Test the exit procedure before signing

Run a tabletop exercise with the person responsible for operations and a legal adviser: a partner announces their departure today — what happens on the next working day? Check whether the agreement clearly identifies the tasks, deadlines, costs and method for confirming completion.

Prepare a brief exit record listing outstanding obligations, assets handed over, access rights revoked and any unresolved disputes. Any post-termination non-compete restriction should be reviewed separately against the Obligations Code, the Prevention of Restriction of Competition Act (ZPOmK-2) and applicable EU rules; a broad restriction is not automatically permissible.

Practical takeaway: before launching your first franchise, write a workable plan for the final day of the relationship. If you do not know who takes responsibility for each task and who pays for it, the agreement needs further work.