Code of Ethics
SECTION 1: PREAMBLE
The members of the Philippine Franchise Association, Inc. believe that franchising must reflect the highest standards of ethical business practices. This can be best achieved by adhering to a strong and effective Code of Ethics.
To protect and to promote the interests of consumers, product and service suppliers and franchisors, and to ensure that this unique form of entrepreneurship continues, we the members of the Philippine Franchise Association, Inc. (PFA) do hereby set forth the following principles and standards of conduct.
SECTION II: PRINCIPLES
Members shall conduct their business professionally, with truth, accuracy, fairness, and responsibility.
Members shall use ethical business practices in dealings with franchisees, consumers and government agencies.
Members shall comply with all applicable laws and regulations in all business operations.
SECTION III: STANDARDS OF CONDUCTS
Good Faith Dealings
Members shall deal with each other fairly and in good faith, which means dealing honestly, ethically, and with mutual respect, in accordance with the terms of the franchise agreements. “Good faith dealing” is not intended to modify the terms of franchise agreements.
No Misleading Promotion
No member shall offer, sell or promote the sale of any franchise, product or service by means of any of explicit or implied representation, which has a tendency to deceive or mislead prospective purchasers of such franchise, product or service.
No Trademark Infringement or Unfair Competition
No member shall imitate the trademark, corporate, name, slogan, or other mark of identification of another business in any manner or form that would have tendency or capacity to mislead or deceive. Members shall respect the confidentiality of all information concerning the franchise contracts and not disclose or permit disclosure of any such information without the written consent of the member concerned.
A franchisor shall support and/or provide training designed to help franchisees improve their abilities to operate their franchises.
Breach of Contract
Fairness shall characterize all dealings between a franchisor and its franchisees. To the extent reasonably appropriate under the circumstances, a franchisor shall give notice to its franchisee of any contractual breach and grant reasonable time to remedy default.
A franchisor should be conveniently accessible and responsive to communications from franchisees. To the extent reasonably appropriate under the circumstance, a franchisor shall give notice to its franchisee of any contractual breach and grant reasonable time to remedy default.
A franchisor shall make every effort to resolve its franchisee’s complaints, grievances and disputes arising from their franchise relationship with good faith and good will through fair and reasonable direct communications and negotiation. Falling this, consideration should be given to mediation or arbitration.
SECTION IV: FULL DISCLOSURE
The investment requirements of a franchisee shall be disclosed to him in as much detail as necessary to avoid being misleading in any way and shall be specific with respect to whether the stated amount is partial or the full cost of the franchise, the items paid for by the stated amount, financing requirements and other related costs.
A franchisor shall disclose to the franchisee within a reasonable time prior to the execution of the franchise agreement its current operations, the investment required, potential profits, performance records and such other information required by the franchisee provided that they are material to the franchise relationship.
Full and accurate written disclosure of all information of considerable material to the franchise relationship shall be given to prospective franchisees at least 15 days prior to the execution of any binding documents.
PFA Fair Franchising Standards
The following Fair Franchising Standards (“Standards”) are hereby adopted to provide a suitable framework for franchise agreements, foster franchising business relations and govern membership in and accreditation by the Philippine Franchise Association (“PFA”).
The objectives of the Standards are as follows:
1. To promote growth of the franchising sector;
2. To establish uniform standards of conduct to govern franchise relationships between PFA Members who are franchisors and their franchisees;
3. To develop a set of principles to govern the business and legal relationships of legitimate franchisors and franchisees; and
4. To promote self-regulation of the franchising sector.
II. Definition of “Franchise”
A “franchise” is a business relationship wherein, for a consideration, the Franchisor grants to the Franchisee a licensed right, subject to agreed-upon requirements and restrictions, to conduct business utilizing the business format and trade/ service marks of the Franchisor.
III. Scope of Application
The Standards cover members of the Philippine Franchise Association (“PFA”) who are engaged in the business of franchising in the Philippines.
Members of the PFA who are franchisors and who would like to market their franchises in PFA-sponsored activities under the PFA seal must abide by the following accreditation process:
1.1 An applicant for accreditation shall submit to the PFA its Franchise Offering Circular (FOC).
1.2 The PFA, through its appropriate committee, will first determine if the applicant is a member in good standing of the PFA. Thereafter, it will review the completeness of the applicant’s FOC for compliance with these Standards.
1.3 In addition to the other requirements for PFA membership, an applicant for accreditation must have been in the business of franchising for a minimum of three (3) years, either as an operator or a franchisor, shall have at least three (3) company-owned outlets, and with at least three (3) franchise outlets, in existence at the time of its application.
1.4 An applicant who satisfies any two (2) of the following:
• at least three (3 ) company-owned outlets, at least three (3) franchised outlets, at least three (3) continuous years of operating the business sought to be franchised. (The three-year operating requirement will be deemed to have commenced with the operation of the first outlet.)
may be awarded probationary accreditation.
An applicant awarded probationary accreditation is entitled to full accreditation once it meets all the requirements.
2. Duty of Existing PFA Members
Those who are regular members of the PFA on the date that these Standards take effect and who desire to be accredited are given three (3) years from that date to comply.
3. Benefits of Accreditation
3.1. An accredited member of the PFA may market its franchise through PFA-sponsored activities.
3.2. An accredited member may exhibit the authorized PFA seal or logo in its marketing materials subject to reasonable restrictions that may be imposed by the PFA Board.
V. Franchise Negotiation
1. Before any Franchise Agreement is signed, Franchisor must give the franchise applicant at least thirty (30) days to review the FOC. The FOC is a document that shall provide the following information:
1.1. History of the franchise system being offered, including the number of outlets opened, in operation, company-owned and franchisee-operated, and franchised outlets closed over the last five (5) years.
1.2. A description of the business concept and how it differentiates itself from the competition.
1.3. The key terms of the Franchise Agreement.
1.4. Full disclosure of the financial requirements of the franchise business.
1.5. A listing of the Franchisor’s key officials and a brief description of their qualifications and background.
1.6. A summary of past and present litigation involving the franchise system being offered over the last five (5) years.
1.7. A provision that requires the franchise applicant to seek adequate legal and financial counsel before signing the Franchise Agreement.
2. Franchisor must give the franchise applicant at least fourteen (14) days to review the proposed Franchise Agreement.
3. Franchisor must provide the franchise applicant with a written explanation of the significant provisions of the proposed Franchise Agreement.
4. The Franchisor shall encourage the franchise applicant to consult with or gather relevant information from franchisees about the Franchisor and the franchise business being offered.
5. The Franchisor shall encourage the franchise applicant to seek adequate legal and financial advice before signing the Franchise Agreement.
VI. Trademark / Service Mark
1. Franchisor must be the registered owner, or must have at least a pending application with the Philippine Intellectual Property Office over the trademark/ service mark of the business sought to be franchised, or is duly authorized to allow the use of said mark by the registered owner.
2. Franchisor must disclose in the Franchise Agreement the terms of usage of the trademark/service mark.
3. Franchisor must maintain its exclusive rights to the trademark/ service mark and diligently protect its right to said mark.
4. Franchisor shall defend, at its own cost, the right of its Franchisee to use said mark against any third party challenge.
VII. Business Format
1. Franchisor must invest time and resources to put into an Operating Manual in sufficient detail significant aspects of the business to be franchised.
2. Franchisor must provide the Franchisee with the Operating Manual before the opening of the franchised outlet but after the relevant franchising agreements have been signed and the agreed fees have been paid.
3. The Franchisor must provide adequate start-up and on-going training to the Franchisee and its personnel to ensure that the Franchisee operates the business according to the operating standards of the Franchisor.
VIII. Dispute Resolution
The Franchisor should endeavor to exhaust all measures of resolving disputes with its Franchisee. As far as practicable, the Franchisor shall endeavor to resort to non-judicial remedies as a way of settling disputes with its Franchisee and provide for such mechanism in its Franchise Agreement.
IX. Effectivity Clause
The Standards shall take effect thirty (30) days after its approval in a general membership meeting called for that purpose.
IRR Frequently Asked Questions
1. What is the Fair Franchising Standards (FFS) of the Philippine Franchise Association?
It is a policy-setting document adopted by the members of the Philippine Franchise Association that covers the conduct of sales of franchise by PFA members.
2. What are the objectives of the FFS?
The objectives are:
• To promote the growth of the franchising sector;
• To establish uniform standards of conduct to govern franchise relationships;
• To develop a set of principles to govern the business and legal relationship of legitimate franchisors and franchisees;
• To promote self regulation of the franchising sector.
3. What are the Implementing rules and Regulations of the FFS?
The Implementing Rules and Regulations (IRR) of the FFS provide the operating guidelines from the implementation of the FFS. The FFS is the main document while the IRR provides the operating details.
4. Who are covered under the Fair Franchising Standards (FFS)?
The FFS basically covers all members of the PFA who are engaged in franchising in the Philippines (i.e PFA members who authorize third parties to use their operating systems and trademarks within a defined territory subject to the payment of an agreed considerations).
5. What is the rationale behind the FFS and its IRR?
Membership in the PFA carries with it the distinction of being identified with the most reputable companies in the Philippines. The FFS and its IRR requires PFA members to observe a uniform set of procedures in the preparation of its franchise agreement and in the negotiation with would-be franchisees. Moreover, the regulations require the PFA member to disclose a uniform set of facts regarding the franchise being offered. All these measures are calculated to enable any would-be franchisee to have the opportunity to check the member’s business credentials so that the latter can make an “informed decision” regarding the franchise being offered. In this, manner, the public’s perception of the PFA as a professional organization and high esteem accorded to its members are preserved and protected at all times. Also, franchising is promoted as a reliable method of business expansion if one is to deal with an entity who is a member of the PFA.
6. What are the salient provisions of the FFS and its IRR?
• A PFA member or a person applying for membership which is engaged in franchising in the Philippine must be accredited (Rule IV, IRR)
• Accreditation is given if the applicant has been in the business of franchising for a minimum of three (3) years, either as an operator or a franchisor, shall have at least three (3) company owned outlets, and with at least three (3) franchise outlets in existence at the time of its application
( Rule IV, 1.3).
• As part of the accreditation process, the applicant is required to file with the PFA a Franchise Offering Circular (FOC). The FOC is basicallly a pro-forma document prepared by the PFA that discloses material facts about the franchise business being offered. These facts are calculated to give the would-be franchisee basic data to help the latter decide whether to obtain the franchise or not. The IRR requires that the FOC be provided to the would-be franchisee prior to the execution of the franchise agreement (Rule IV, IRR).
• The IRR also requires certain mandatory provisions (Rule VII) to be indicated in the franchise agreement of the applicant. This is done to ensure that the basic rights of the parties are protected and adequately provided for.
• To ensure full compliance, the applicant is also required to attend a seminar on the FFS compliance Program to be conducted by the Continuing Education Committee of the PFA. This will instruct the applicant on how to comply with the FFS and its IRR.
• Finally, a guideline on how to negotiate the sale of the franchise must be followed (Rule VII, IRR) by every accredited member. This is to ensure that the negotiation is done in an “even-handed” manner.
• Once accredited, a PFA member can use the PFA seal and logo in franchising its business concept (Rule IV, Sec. 3). Accreditation does not guarantee that the franchise being offered is legitimate in all respects. However, with the safeguards required by the FFS and the accreditation process, the person dealing with PFA member is given a vastly greater opportunity to investigate the details of the franchise business being offered.
7. What about those who are already members when the FFS was adopted? Can they be accredited?
Those who are already members of the PFA at the time of the affectivity of the FFS and its IRR and are engaged in franchising are given three (3) years from the date of approval of the FFS by the members of the PFA.
8. Are there sanctions for violations of the FFS and its IRR?
A member of the PFA who violates the provisions of the FFS or its IRR shall, upon review by the PFA Board, be subjected to sanctions as may be deemed appropriate by the Board.
9. When will the PFA begin implementing the FFS and its IRR?
Although the FFS has already been approved by the membership of the PFA and the Board enjoys full authority to adopt the IRR as is, the Board nevertheless decided to consult the general membership to ascertain their sentiments on the IRR. After the consultation, to be done within 2004, the Board will decide when to proceed with the implementation of the FFS and its IRR.
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