The operations manual of a franchise system, together with the franchise agreement, is one of the most important documents that will apply to a franchisee. In this article Jack Newton, lawyer, and Raynia Theodore, principal, at MST Lawyers, unveil what you need to know.

Most franchise agreements dictate that the franchisee must comply with the operations manual and that a breach of the operations manual constitutes a breach of the franchise agreement. The operations manual usually sets out the “fine print” of operating a franchise. Quite simply, the operations manual is the key to your business.

The operations manual for a franchise system in its infancy may be brief because it can take time for franchisors to develop the key processes and procedures required to operate the franchise business. However it is important to ensure that the content deals with all the matters that the franchise agreement states are included in the operations manual.

Where an established franchisor's operations manual doesn't address the usual matters, that may be either a sign the franchisor does not take responsibility for the matter or it may otherwise be a sign the franchisor’s system is still not settled.

Because of the importance of the operations manual, a franchisee should request a copy before signing the franchise agreement. 

Franchisors are often reluctant to hand out copies to prospective franchisees for fear that the franchisee will pull out and run off with the franchisor’s trade secrets. In such a case, and as a compromise, a prospective franchisee should consider requesting access to view the operations manual at the franchisor’s premises.

What's in the operations manual

A typical operations manual will include:

A general introduction and information about the franchisor and:

Key people

Key people (i.e. employees) to be engaged in the franchise business. The section can include information about employee roles/job descriptions, uniform requirements, recruitment procedures (such as advertising and interviews), training and performance management criteria.

Products and services

This section is critical as it usually addresses, in greater depth, the products and services that are to be sold in the franchise business.  It may include details of ingredients, recipes and nutritional information.

Suppliers

One of the key attractions of the franchise model is the greater buying power of a network. Franchisees are generally required to acquire products and services to be used in the franchise system from approved suppliers and these are usually detailed in the operations manual.

Set-up and processes

If the franchise operates from fixed premises – a retail shop or office – there will be no doubt a section in the operations manual that outlines the franchisor’s setup, branding and equipment and furniture requirements as well as store procedures (such as opening and closing processes and hours).

Equipment

Specifically details of all the tools and machinery to be used in the franchise business and information about safe work practices and how frequently the equipment is to be tested and serviced.

Customer service

The operations manual will usually contain a section on techniques for dealing with customers and ensuring high customer satisfaction.  A common inclusion is a set of standards or goals for customer service, together with complaint-handling procedures.

Branding

The manual should include information regarding the franchisor’s branding requirements for items such as stationery, advertisements, signs and posters.

Policies

A well-crafted operations manual should include copies of all the policies and procedures of the franchise system, including policies in respect of privacy, equal opportunity, workplace conduct (such as harassment, bullying and discrimination), dispute resolution and employment.

Health and safety

The operations manual will typically include information covering first aid, fire safety and evacuation, pest management, accident reporting, robbery and other crime and drug and alcohol use.

Administration

This section of the operations manual usually covers financial matters (such as the point of sale system, cash handling and floats) as well as sales, stock, wastage and cost management.  There may also be information on reporting procedures and stock ordering.

What else you need to consider

The two most critical questions that franchisees must ask:

1: are all the matters that the franchise agreement states are covered in the operations manual actually included?

2: are there any matters in the operations manual that appear inconsistent with the franchise agreement?

Amendment to the operations manual

Most franchise agreements provide that the operations manual can be changed by the franchisor from time to time.  Often this will occur without the consent of franchisees who then will be required to immediately comply with the changes.

Employment

Franchisors differ quite dramatically in how they approach industrial relations/employment matters. Some take an active role in prescribing employment contracts or enterprise agreements, others leave it solely to the franchisee.

In either case, the franchisee must actively take steps to ensure that the terms of the contract or agreement are accurate and lawful.

Even if the franchisor deals with industrial relations/employment matters in the operations manual, sole responsibility for compliance with industrial relations laws lies with the franchisee in its capacity as the employer.