Code of ethics For members, associated members and associated experts of the German Franchise Association. applicable since the members resolution of 16 May, 2008. The following European Code of Conduct represents a revised version of the code of ethics, that was published by the European Franchise Federation (EFF) in 1972 and was worked out in coordination with the EU Commission in Brussels. This code of conduct is a relevant compilation of essential rules for fair behavior within the franchise activities in Europe. The German Franchise Association is a member of EFF and took part in drawing up the European Code of Conduct. It concludes the Code of Ethics for its members and associated advisors and ensures compliance with the principals expressed in this document. 1. The term franchising Franchising is a sales and distribution system, by means of which goods and / or services and / or technologies are marketed. It is based on a close and ongoing cooperation of legally and financially independent and self-employed companies, the franchisor and his franchisees. The franchisor grants his franchisees the right, and at the same time imposes the obligation on them to run a business according to his concept. This right entitles and obliges the franchisee, against direct or indirect remuneration, within the framework and for the duration of a contract signed between the parties, to utilize, under ongoing technical and economical support by the franchisor, the system s name and / or trademark and / or the logo and /or other intellectual property or protection rights as well as know-how, the economical and technical methods and the business system of the franchisor. Know-how means a package of not patented practical knowledge, that is based on the experience of the franchisor, that has been tested by him and that is secret, essential and identified. Secret means that the know-how in its substance, structure or the exact combination of its individual parts is not generally known or is not easily accessible. The term is not to be understood in the strict sense of the word, that every part of this knowledge has to be completely unknown or unavailable outside the business of the franchisor. Essential means that the know-how includes knowledge that is imperative for the franchisee for the purpose of using, selling or reselling the contractual products or services. The know-how must be imperative for the franchisee; this applies, if, at the point of the closing of the contract, it is especially suitable for improving the competitive position Code of ethics 1
of the franchisee, for increasing his performance and if it makes it easier for him to enter a new market. Identified means that the know-how must be described in a sufficient manner, so that it can be verified whether the features of secretness and essentiality have been fulfilled; the description of this know-how can either be put down in writing in the franchise agreement or in a special document or it can be carried out in any other appropriate form. 2. Guiding Principles 2.1 The franchisor is the initiator of a franchise network, that consists of the franchisor and the individual franchisees, and whose support center in the long term is the franchisor. 2.2 Commitments of the franchisor: The franchisor must: Have successfully run a business concept for an appropriate period of time and with at least one pilot project before founding his franchise network; Be the owner or legitimate user of the company name, trademark or any other special labeling of his network; Carry out an initial training of the individual franchisee and must assure him ongoing commercial and / or technical support during the entire term of the contract. 2.3 Commitments of the individual franchisees: The individual franchisee will: Put his full sustained effort into the growth of his franchise business and take care that the common identity and the good reputation of the franchise system is guaranteed; Will provide the franchisor with verifyable economic data, in order to enable him to assess the performance and the economic results necessary for effective management. He will also give the franchisor and / or his representative on request access to the premises and to the documents of the individual franchisee; The franchisee is not allowed, either during or after the end of the term of contract, to pass on to third parties know-how that he has been provided with by the franchisor. 2.4 Further obligations of both franchise parties: Both parties will apply fairness in their dealing with each other. In the case of violation of the contract, the franchisor will give notice to the franchisee in written form and, if necessary, determine an appropriate period of time, in which the violation must be rectified. Both parties are required to solve complaints and arguments in good faith and in a fair manner through objective and fair discussions and direct negotiations. The parties must desist from conduct damaging to the franchising principle. Code of ethics 2
Conduct damaging to the franchising principal are in particular: unjustified questioning of the financial fundamentals of the franchisor and of the franchisee. unobjective statements in particular to the press and other media on individual cases, which are damaging to the franchising principal, franchising system or specific franchising systems. the use of leverages designed to damage individual franchise systems or the franchising principal in general, for the purpose of pursuing individual interests. direct or indirect class actions by franchisees and in particular the financing and initiation of these by interest groups opposed to the franchising business or to individual franchise systems. 2.4 If disagreements between the parties can not be resolved, the GFA will offer mediation services. 2.5 The duties outlined in 2.2 to 2.4 are fundamental duties in the spirit of clause 7 d) of the GFA Articles of Association. 3. Advertising for the recruitment and acquisition of partners and disclosure 3.1 Advertising for the acquisition of franchisees should be carried out without ambiguity and without the use of misleading information. 3.2 All PR matters and advertisements which are used for the purpose of winning franchisees and which mention results, numbers and possible profits made by the franchisee have to be non-misleading and factually correct. 3.3 In order to enable future franchisees to decide on binding agreements with full knowledge of all facts, he will receive prior to the signature of a binding agreement a copy of the valid code of conduct as well as the complete and accurate written disclosure of all information and documents relevant for the franchise relationship. 3.4 If the franchisor intends to bind the franchisee with a preliminary agreement, the following principles are to be observed: Before a franchise contract is completed, the future franchisee receives a written notification about the purpose of the preliminary agreement and the amount of fees, that possibly has to be paid to the franchisor in order to cover the costs for his actual expenditures that will occur during and because of the precontractual phase; if a franchise contract will finally be closed, the aforementioned payment is to be refunded by the franchisor or otherwise to be deducted from the entrance fee that has to be paid by the franchisee. The preliminary agreement should contain a clause concerning the duration and the termination of the contract; The franchisor can include a ban on competition and / or confidentiality clause to protect his know-how and his identity. Code of ethics 3
4. Choosing the individual franchisees A franchisor should only choose and accept franchisees who, after careful scrutiny, are found to be in command of the necessary knowledge, training, the personal qualifications and the financial means to manage a franchise company. 5.The franchise contract 5.1 The franchise contract has to be constructed in accordance to the applicable national law, the law of the European Union and this code of conduct and its relevant supplements. 5.2 The contract has to cover the interests of the members of the franchise network by protecting the commercial and intellectual property rights of the franchisor and by maintaining the uniform identity and reputation of the franchise network. All contracts and contractual agreements concerning the franchise relationship are to be written in the official language of the country in which the franchisee is located or they are to be translated by an authenticated translator into that language and to be handed over to the individual franchisee immediately after the signing of the contract. 5.3 The franchise contract has to cover precisely the respective obligations and responsibilities of the parties and all other essential conditions of the contractual relationship. 5.4 The following contractual conditions represent the minimum: The rights granted to the franchisor The rights granted to the individual franchisee The goods and / or services that are to be provided to the individual franchisee The commitments of the franchisor The commitments of the individual franchisee The financial commitments of the individual franchisee The duration of the contract which has to be designed in a way that the franchisee can amortize his initial investment. The basis for a necessary prolongation of the contract The duration of the contract, that should be limited in such a way, that the franchisor can amortize his initial franchise specific investments The basis for a necessary prolongation of the contract The conditions according to which the individual franchisee can sell or transfer the franchise business, as well as possible right if refusal of the franchisor in this respect Those conditions that concern the use of the typical labels, the company name, the trade mark, the service name, the shop sign, the logo or other specific identification characteristics of the franchisor The right of the franchisor to adjust the franchise system to new or changed circumstances Regulations concerning the termination of the contract Regulations concerning the immediate return of material and non-material property of the franchisor or another proprietor after the termination of the contract. Code of ethics 4
6. The code of conduct and the master-franchise system This code of conduct is applicable for the relationship between the franchisor and his individual franchisees and equally between the main franchisee and his individual franchisees. It is not applicable for the relationship between the franchisor and his main franchisees. 7. The code of conduct and the associated experts in the GFA The associated experts are part of franchising practice. They pursue and support the interests and objectives of the franchise business. Given this objective, conduct can not be tolerated, that pursues individual interests against franchising or fundamental aspects of franchising. Fair and decent treatment of the franchise business is therefore an inalienable condition for successful cooperation. As the GFA under its Articles of Association represents the interests of the German franchising business, conduct that is directed against the GFA or its members will be viewed as a breach of this Code of Ethics. Furthermore the regulations contained in 2.5 and 2.6 apply. Code of ethics 5