European Parliament resolution of 12 September 2017 on the functioning of franchising in the retail sector (2016/2244(INI))
Date: 2017-09-12
Institutions: Committee on Economic and Monetary Affairs, Committee on Employment and Social Affairs, Committee on the Internal Market and Consumer Protection, European Parliament
Subjects: competition law, franchising, restriction on competition, retail selling, single market, unfair terms of contract








C_2018337EN.01000601.xml










20.9.2018   


EN


Official Journal of the European Union


C 337/6






P8_TA(2017)0322
The functioning of franchising in the retail sector
European Parliament resolution of 12 September 2017 on the functioning of franchising in the retail sector (2016/2244(INI))
(2018/C 337/02)

The European Parliament,






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having regard to its resolution of 11 December 2013 on the European Retail Action Plan for the benefit of all actors (1), and in particular paragraph 29 thereof,










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having regard to its resolution of 7 June 2016 on unfair trading practices in the food supply chain (2),










—


having regard to the study of April 2016 commissioned by the IMCO Committee on franchising (3),










—


having regard to the study of September 2016 commissioned by the IMCO Committee entitled ‘Legal Perspective of the Regulatory Framework and Challenges for Franchising in the EU’ (4),










—


having regard to the briefing entitled ‘Future Policy Options in Franchising in the EU: Confronting Unfair Trading Practices’ (5),










—


having regard to the workshop entitled ‘Relations between franchisors and franchisees: regulatory framework and current challenges’, organised for the IMCO Committee on 12 July 2016,










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having regard to Rule 52 of its Rules of Procedure,










—


having regard to the report of the Committee on the Internal Market and Consumer Protection and the opinion of the Committee on Economic and Monetary Affairs (A8-0199/2017),










A.


whereas there is no common European definition of franchising and franchising agreements differ from one business to another, but one key feature of such relationships is a contractual partnership concluded on a voluntary basis between entrepreneurs or natural or legal persons that are legally and financially independent of each other, whereby one party (the franchisor) grants to the other party (the franchisee) the right to operate his franchising formula, name, and trademarks, and shares know-how, drawing on the franchisor’s technical and organisational expertise and assistance for the duration of the agreement, where customers rely upon the unity of the franchising system, the intention of both the franchisor and the franchisee being to allow for the rapid acquisition of new markets with limited investment and an increased chance of success;










B.


whereas in its resolution of 11 December 2013, Parliament welcomed franchising as a business model which supports new business and small-business ownership, but noted the existence of unfair contract terms in certain cases and called for transparent and fair contract terms; moreover, it drew the attention of the Commission and Member States, in particular, to problems faced by franchisees wishing to sell their business or change their business formula, whilst remaining active in the same sector and requested that the Commission examine the ban on price-fixing mechanisms in franchise systems and the effects of long-term competition clauses, purchase options and the prohibition of multi-franchising;










C.


whereas franchising has the full potential of being a business model that can help in completing the single market in the retail sector, as it can be a convenient means to establish a business through a shared investment by the franchisor and franchisee; is therefore disappointed that it is currently under-performing in the EU, representing only 1,89 % of GDP, as opposed to 5,95 % in the USA and 10,83 % in Australia, 83,5 % of franchising’s turnover being concentrated in only seven Member States (6), which is why it is important to encourage a wider dissemination of this business model throughout the EU;










D.


whereas franchising has a significant potential cross-border dimension, is of importance for the functioning of the internal market and can thus lead to job creation, SME and entrepreneurship development as well as the acquisition of new capabilities and skills;










E.


whereas existing legislation covering franchising as a business model varies widely between Member States, which creates technical barriers and may discourage both franchisors and franchisees from expanding their activities across borders; whereas this, in turn, can have an impact on final consumers by limiting their choice;










F.


whereas there are differences between ‘hard’ and ‘soft’ franchising, depending on the conditions of the franchising agreement; and, moreover, alternative business models such as ‘groups of independent retailers’ have special characteristics and should only be affected by rules governing franchising, insofar as they meet the definition of franchising;










G.


whereas there is a lack of information on the functioning of franchising across sectors, since relevant information is not written down or can often only be found in the side letters accompanying a franchise agreement, which are confidential, therefore not public, and at EU-level there is no mechanism for collecting information on potentially unfair contract terms or unfair implementation of contracts, which is why a platform containing this important information is needed in order to improve awareness among franchisors and franchisees of their duties and their rights;










H.


whereas e-commerce is expanding and is being used more and more by consumers and should therefore be better reflected in franchise agreements; whereas, in the context of the realisation of the digital single market specific attention should therefore be paid to any tensions arising between franchisors and franchisees with respect to e-commerce, for example, in relation to the right of exclusivity of the franchisee for a specific geographical area, and the increasing relevance of consumer data for the success of franchising business models, particularly as franchise agreements currently do not contain provisions on these subjects, leaving scope for unnecessary uncertainty and conflicts;










I.


whereas the Commission has defined unfair trading practices as ‘practices that grossly deviate from good commercial conduct, are contrary to good faith and fair dealing and are unilaterally imposed by one trading partner on another’ (7);












1.


Considers that, given its current under-utilisation in the EU in comparison to other developed economies, for the completion of the single market in the retail sector, franchising can play an even more important role;












2.


Considers it important that the Member States apply effective measures against any unfair trading practices in the field of franchising, but notes that there is still a high degree of divergence and diversification between Member States in this respect; considers it important, therefore, that non-legislative homogeneous guidelines, reflecting best practices, on the functioning of franchising in the retail sector be put in place;












3.


Calls on the Commission to introduce guidelines on franchising contracts, in order to better shape the normative environment of franchising contracts ensuring compliance with labour standards and decent and high-quality service;












4.


Is of the view that, in view of the strong cross-border element of franchising, a uniform approach to correct unfair trading practices at EU level is advisable;












5.


Acknowledges that, on a national level, legislation has been enacted to protect franchisees, but the focus has been on the pre-contractual stage, to impose disclosure obligations on the franchisor; regrets that national systems have not provided for enforcement mechanisms which are efficient in ensuring the continuation of the franchise relationship;












6.


Notes that franchisees are often the weaker contracting party, especially when they are SMEs, as the franchise formula has normally been developed by the franchisor and franchisees tend to be financially weaker and may consequently be less well-informed than the franchisor and therefore dependent on the expertise of the franchisor; stresses the fact that franchise systems are heavily dependent upon the functioning co-operation of franchisor and franchisees, taking into consideration that the franchising system depends on good implementation by all parties;












7.


Recalls that franchising is a contractual relationship between two legally independent businesses;












8.


Stresses that regulation should maintain and increase market confidence in franchising as a way of doing business, as it encourages entrepreneurship not only in microenterprises and small and medium-sized enterprises that become franchisors, but also for individuals who become franchisees;












9.


States that franchisors have organised themselves both at national and European level for the representation of their interests, whereas franchisees often lack such representative organisations defending their collective interests, and continue to operate mostly on an individual basis;












10.


Calls on the Commission and Member States to encourage dialogue between franchisors, franchisees and decision-makers, to facilitate the creation of associations representing franchisees, and to make sure that their voices are heard, whenever policies or legislation are prepared that may affect them, in order to ensure more equal representation of the parties, while stressing that membership of these organisations shall remain optional;












11.


Emphasises that there is a persistent lack of information on the functioning of franchising in the retail sector and calls on Member States to designate, in co-operation with the Commission, contact points for information on problems encountered by franchisors and franchisees, whenever available, and calls on the Commission to improve the collection of information at EU level, based, inter alia, on information from these contact points, whilst guaranteeing the confidentiality of the information thus acquired;












12.


Calls on the Commission to examine the functioning of franchising in the retail sector, including the existence of unfair contract terms or other unfair trading practices, and to request Eurostat to pay attention to this model when collecting statistical information on the sector, without any additional administrative or other burdens for entrepreneurs;












13.


Takes note of the European Code of Ethics for Franchising, developed by the European Franchise Federation (EFF), as a potentially efficient tool for promoting best practices in the franchising sector on a self-regulatory basis, but also notes that the Code has been subject to fundamental criticism from franchisees pointing, inter alia, to the fact that the Code was worded more strongly in respect of the commitments of the franchisor prior to its revision in 2016; encourages franchisors and franchisees to ensure the balanced and fair representation of both sides in order to find an appropriate solution;












14.


Regrets, however, that the Code only covers a small minority of franchises operating in the EU, as the majority of franchises belong neither to the EFF nor the national associations that have adopted it, and several Member States do not have national franchise associations;












15.


Notes there are concerns about the lack of an independent enforcement mechanism accompanying the European Code of Ethics and notes that in some Member States this lack of independent enforcement prompted the introduction of legislation preventing and addressing unfair trading practices in franchising;












16.


Recalls that the Code of Ethics is a set of rules accepted by franchisors in addition to legally-required rules; believes that the Code of Ethics should always remain as added value for anyone willing to abide by these rules;












17.


Considers the need to evaluate the effectiveness of the self-regulatory framework and the EU supply chain initiative, as membership of the national franchise organisations is a pre-requisite for participation in this initiative;












18.


States that franchise agreements should fully respect the principles of balanced partnership, under which the franchisor and franchisee must be reasonable and fair towards each other and resolve complaints, grievances and disputes through frank, transparent, reasonable and direct communication;












19.


Calls on the Member States to submit to the Commission complaints and other relevant information they receive through a contact point or otherwise; calls on the Commission to draw up, on the basis of that information, a non-exhaustive list of unfair trading practices which should be published and made accessible to all interested parties; calls, moreover, on the Commission to set up, if necessary, an expert platform in order to obtain further information about retail franchising practice and, in particular, about any types of unfair trading practice;












20.


Points, in particular, to the need for specific principles to ensure the balanced contractual rights and obligations of the parties, such as clear, correct and comprehensive pre-contractual information, including information on the franchise formula’s performance, both general and targeted towards the franchisee’s envisaged location, and clear limits concerning confidentiality requirements, to be available in writing and with sufficient notice prior to the signing of the agreement, and the introduction of a cooling-off period after signing the agreement, where appropriate; points, also, to the need for continued commercial and technical assistance from the franchisor to the franchisee for the duration of the agreement, if needed;












21.


Emphasises the need for specialised initial training where necessary and appropriate guidance by and information from the franchisor for franchisees during the term of the agreement;












22.


Recalls the obligation of franchisees to devote their best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network, and to this effect to collaborate loyally with all partners in the network and to respect the industrial and intellectual property rights involved in the franchise formula, as well as competition rules;












23.


Adds, however, that sometimes franchisors require franchisees to purchase products and services that are not related to the franchise formula; such a requirement should not be seen as part of the obligation of franchisees relating to the maintenance and common identity and reputation of the franchise network, but can easily constitute an unfair trading practice;












24.


Emphasises that non-competition clauses should be clearly formulated, reasonable and proportionate and should not apply for a longer duration than what is strictly necessary, considering, in particular, the potential need for franchisees to change their franchise formula, if their neighbourhood and therefore the demand for products or services changes;












25.


Notes the issues arising around online sales, as these constitute an increasingly important part of the franchise business model, but are not covered in traditional franchise agreements, which do not take into account the effect internet sales may have on the provisions set out in them; suggests, therefore, the inclusion of provisions relating to online sales in franchise agreements, where appropriate, in particular in those cases where the power of the franchisor and the franchisee is imbalanced, notably when the franchisee is an SME;












26.


Requests the Commission to open a public consultation in order to obtain unbiased information as to the real situation in franchising and to draft non-legislative guidelines, reflecting best practices, on the functioning of franchising in the retail sector, in particular in relation to the latest technological and market developments, such as internet sales, and to submit these to Parliament by January 2018 at the latest; invites the Commission in this respect to make an analysis of the existing self-regulatory instruments as well as of legislative practices of Member States in the field of franchising in the retail sector and to submit its findings to Parliament, including recommendations on how to further develop the franchising sector in the EU;












27.


Stresses that Parliament should be actively involved in all work on franchising in the retail sector, including when regulations and directives on franchising are adapted in order to achieve a more consistent and coherent regulatory framework;






Competition law










28.


Emphasises that Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (8) must be uniformly applied in the Member States and regrets the lack of information about its application;












29.


Considers that the Commission should check whether the effectiveness of that Regulation is not being undermined as a result of uneven application in the Member States and whether it is in line with recent market developments, in particular the exempted post-contractual clauses and purchasing conditions;












30.


Considers that the Commission should check to what extent application of the Regulation could be improved through a mechanism of assessment within the European network of competition authorities; stresses that inconsistent follow-up action by the Commission prevents cross-border retail activity and fails to create a level playing field within the single market;












31.


Believes that better implementation of the Regulation at national level would improve distribution, increase market access for other Member States’ businesses and eventually provide a better deal for end consumers;












32.


Believes that the Commission should also analyse the unintended impact of competition law in each and every Member State;












33.


Encourages the Commission to start public consultations and inform Parliament of the suitability of the model on which the future block exemption regulation will be based;












34.


Calls on the Commission also to ensure the recovery of any illegal state aid by means of tax advantages in the area of franchising and to show firmness in the conduct of ongoing inquiries; stresses, moreover, that the EU needs to have clearer legislation on tax rulings; calls on the Commission to rectify any infringement in the area of franchising with a view to ensuring fair competition across the single market;












35.


Calls on the Commission to correct market failures and ensure an effective fight against tax evasion and tax avoidance in the field of franchising;












36.


Calls on the Commission to check whether it is necessary to revise the Regulation and, in that connection, to verify and inform Parliament as regards (1) the impact of the horizontal approach on the functioning of franchising; (2) whether the model of franchising adopted in the Regulation reflects market reality; (3) to what extent the so-called ‘permitted vertical restraints’, i.e. the conditions under which the franchisees may purchase, sell or resell certain goods or services are proportionate and have a negative effect on the market and consumers; (4) what new challenges franchisors and franchisees have to face in the context of e-commerce and digitisation in general; and (5) to collect market information in terms of new trends, market developments regarding network organisation and technological advances;












37.


Calls on the Commission to revise the rules on the enforcement of the Regulation by Member States, while its application should be proportionally adjusted to fulfil its aim;




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38.


Instructs its President to forward this resolution to the Council and the Commission.






(1)  OJ C 468, 15.12.2016, p. 140.

(2)  Texts adopted, P8_TA(2016)0250.

(3)  IP/A/IMCO/2015-05, PE 578.978.

(4)  IP/A/IMCO/2016-08, PE 587.317.

(5)  PE 587.325.

(6)  ‘Legal perspective of the regulatory framework and challenges for franchising in the EU’, study for the IMCO Committee, September 2016, p. 12.

(7)  ‘Tackling unfair trading practices in the business-to-business food supply chain’, COM(2014)0472.

(8)  OJ L 102, 23.4.2010, p. 1.