Franchising in Taiwan: Setting Clear Rules on Hands-on Management and Outside Work

Many Taiwanese brands begin with founders running their own outlets. When they start franchising, they often require franchisees to make a ‘full-time commitment’. But does that mean being on site every day? Can franchisees keep another job, manage two outlets at once or appoint a store manager to run things? If these questions are left to verbal understandings, they can easily become disputes after opening. Building a franchise network based on mutual trust starts with turning expectations about personal involvement into clear, reasonable and verifiable arrangements.

1. Distinguish between an on-site presence and management responsibility

Do not simply turn the founder's working hours into contractual obligations for franchisees. Start by listing the matters that require decisions from the person responsible for an existing outlet, such as staff allocation, cash discrepancies, serious customer complaints and emergency repairs. Then identify which tasks must be handled on site and which can be delegated to a store manager or dealt with remotely.

If an outlet only runs properly when the owner is present, investigate why. Have key techniques yet to be standardised? Do staff lack decision-making authority? Or does the operation genuinely require supervision by a suitably qualified person? Requiring franchisees to spend long hours on site is no substitute for fixing weaknesses in operating procedures.

Franchisors can choose from the following arrangements according to operational needs, but should not use the terms interchangeably when recruiting:

• Owner-operated: The franchisee takes primary responsibility for day-to-day management and cannot participate solely as an investor.
• Designated operator: A person approved in advance may manage the outlet, while the franchisee remains responsible under the agreement.
• Multi-unit management: The franchisee may manage several outlets, provided each has clear on-site management and reporting arrangements.

If companies are accepted as franchisees, it is particularly important to identify the designated operator. A clause stating that ‘the franchisee must be personally present on site’ is inadequate if no individual is named to fulfil that role.

2. Turn ‘full-time commitment’ into workable conditions

Phrases such as ‘active participation’ or ‘must not affect operations’ are too vague. The agreement should explain when participation requirements apply, what duties they cover and how compliance will be assessed. For example, must the franchisee take part in on-site management during the initial opening period? Can a store manager take over routine duties once operations are stable? Which major matters require the franchisee's approval?

If specified on-site hours or a minimum frequency of involvement are genuinely necessary, explain the operational reasons rather than setting arbitrary figures. Distinguish between the outlet's opening hours and the hours when the franchisee must personally be present: they are not necessarily the same.

Restrictions on outside work should address specific risks. A franchisee with another job may be unable to make timely decisions, while someone running another business may face competing demands on resources or conflicts of interest. Franchisors should address these issues separately rather than banning all outside activities. Simply holding shares in another company is not the same as actively managing it.

Approval criteria might include whether a suitable manager is available on site, whether a decision-maker can be reached in an emergency, and whether outside work overlaps with agreed management hours. Avoid merely reserving ‘absolute discretion’ for the franchisor without providing any basis for decisions.

3. Include restrictions in Taiwan's pre-contract disclosures

Taiwan has no single, dedicated franchise statute, but that does not mean franchising is unregulated. The Fair Trade Act and the Taiwan Fair Trade Commission's Principles for Handling Cases Concerning Franchisors' Business Practices are important reference points. Contractual rights and obligations are also governed by general legislation, including the Civil Code.

The material franchise information listed in those principles includes restrictions on the franchise relationship during the term of the agreement. Requirements for personal operation, restrictions on outside work and prohibitions on delegating management without consent may directly affect a franchisee's commitment and choices. They should therefore be clearly disclosed before signing, not added to the operations manual after the outlet opens.

Under the principles, franchisors should provide material franchise information ten days before establishing the franchise relationship, or within a reasonable period appropriate to the individual case. They should also allow a separate contract review period of at least five days. Disclosure and contract review are distinct requirements and should not be conflated. Inadequate disclosure of material restrictions may constitute deceptive or obviously unfair conduct capable of affecting trading order under Article 25 of the Fair Trade Act, although this must be assessed case by case.

Recruitment messages must also be consistent. If franchisees are expected to manage their outlets personally, they should not be attracted with claims that there is ‘no need to run the shop yourself’. On-site requirements may determine whether applicants can retain their existing income, so they should not be explained only after payment has been collected.

4. Plan ahead for absences, substitute management and exceptions

Personal operation should not mean that franchisees can never take a holiday or fall ill. Franchisors should set out in advance how short-term absences must be notified, the qualifications required of substitute managers, emergency contact arrangements and the circumstances requiring prior approval.

Short-term cover and long-term delegation should follow different procedures. For short-term cover, the priority is continuity of management. Long-term delegation requires a fresh assessment of who will actually be in charge, their capabilities and the allocation of responsibilities. Even where substitute management is approved, clarify whether this affects the franchisee's existing contractual obligations rather than leaving each party to make its own assumptions.

Franchisors can create a one-page application form recording the reason for the request, its duration, the proposed substitute manager, handover arrangements and decision-making authority. The procedure should also specify a response deadline. Refusals should explain the relevant operational risks, and similar cases should be assessed consistently.

When checking compliance, start with handover records, meeting minutes and records of how major matters were handled. There is no need to continuously track someone's location merely to prove their ‘involvement’. Any collection and use of personal data must also comply with Taiwan's Personal Data Protection Act.

Practical takeaway: First define the decisions and on-site responsibilities the franchisee must undertake. Then decide whether requirements for physical presence or restrictions on outside work are necessary. Before recruitment begins, give applicants enough clarity to judge whether their time, employment and family arrangements genuinely fit the role.