Social Media Legal Considerations For Franchisors

August 28, 2012

By Meredith Bauer

Social media and social networking are obviously becoming more and more prevalent in today’s world, not only as a social function, but also as important marketing tools for a business or a brand. From a franchisor perspective, thought needs to be put into the role that social media and social networking will play in the franchise system, and decisions should be documented in the franchise agreement and in clear social media policies.

Franchisors often find themselves in a dilemma when considering what role social networking will play in their franchise system. On one hand, most franchisors recognize that allowing franchisees to use social media networks in their business can have significant benefits for marketing purposes and brand recognition. On the other hand, social networking does not come without risks, and franchisees and their employees can connect the brand to public messages without brand oversight.

Most have us have seen the well-publicized video posted by Domino’s employees violating certain health codes in the preparation of food. It is no secret that inappropriate video content or pictures posted online can be a media disaster that wreaks havoc on a brand. However, franchisors need to also consider other, less obvious issues that can come up when allowing the use of social networking in a franchise system.

First, social network users seem to at times forget that laws and regulations still apply in this realm, due to the informality of the platform. For example, users of social media cannot use it to slander or defame another person or business any more than they could do so in printed media. Employers may not use social media for discriminatory employment practices, and bosses may not use electronic networks to harass employees. Franchisors cannot use the copyrighted material of other users in their own social media content, or violate trademark or other intellectual property laws. Franchisees cannot make statements on social media that might constitute fraud or misrepresentations – such as misleading or over-promising statements about a product or service. Guidelines relating to endorsements and public testimonials still apply.

Secondly, a common mistake on social networks can be the accidental disclosure of confidential information. Due to the informal and frequent nature of status updates, franchisees can disclose confidential information without realizing they are doing so. Common mistakes can be commenting on legal matters, private matters internal to the system, or even recipes or confidential pricing and customer information.

A third consideration for franchisors is legal ownership of social media accounts, which can be extremely important in situations in which a franchisee termination or expiration occurs. Many franchise agreements address ownership of telephone numbers and yellow page listings, but have not yet been updated to address the ownership of social media accounts. A particular franchisee-run account may have a large number of followers that the franchisor wishes to keep engaged with the brand, in which case ownership of the account is key to continuity in the event of a termination. Ownership is also important in situations when a franchisee uses the account to bash or negatively comment on the franchisor in a contentious termination situation.

The level of comfort that a franchisor has with social networks is not consistent across the board, and there is no one-size-fits-all approach to addressing these issues in documentation. Standard language in franchise agreements is extremely important, and inclusion of a specific social media policy within the operations manual is a best practice for franchisors that wish to continually evaluate and update their approach and policies. And of course, all franchisors should review their insurance policies to make sure that their risk exposure is limited in the electronic realm.