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Your franchise will deal with different kinds of sensitive and confidential information. Therefore, you must protect this information to avoid negative consequences, such as ensuring your trade secrets do not land in the hands of a competitor. This article will explain how you can maintain confidentiality in your franchise.

Why Is Confidentiality Crucial In Your Franchise Relationship?

As the franchisor, you are recruiting franchisees to run new operations of your existing business in different locations. Thus, you need to share the different kinds of information necessary to run your business with your franchisees. Although the nature of this information can vary, it will almost certainly include sensitive and confidential information, including, for example:

  • sales data;
  • growth strategies; and
  • key commercial documents such as your franchise agreement.

Evidently, you do not want third parties to find this information without your consent, so you must maintain confidentiality.

Firstly, the law requires that you keep certain kinds of information confidential and protected. However, other information will be commercial information unique to your franchise, giving you an edge over your competitors. Therefore, releasing this information could result in legal consequences for your franchise and the loss of business and clients.

Additionally, your franchisees will appreciate your desire to protect confidential information. Accordingly, if they know you protect sensitive information where necessary, they can trust that you will protect their information as well.

For example, if franchisees know that you have safeguards to protect confidentiality, they can feel safe trusting you with sensitive commercial and personal information relating to their business and finances.

What You Need to Protect

Therefore, you will need to protect different kinds of confidential information for different reasons. By way of explanation, confidential information is anything you or your franchisees want to keep secret. The table below sets out some examples of the kind of confidential information you should protect appropriately.

Personal Information

This information is anything that you can use to identify a living person. Under the Privacy Act, if you deal with this information, you must do so according to this law’s principles. This includes keeping it private and not disclosing it outside of where the law allows it.

Intellectual Property

Your franchise will own various intellectual property assets, some of which rely on secrecy for both commercial and legal purposes. Therefore, you need to keep the nature of these assets confidential where necessary.

Trade Secrets

Trade secrets are a kind of intellectual property with a broad definition. They give your business a commercial advantage and are not available to the general public. They may include secret recipes or your operating systems.

Confidential Information Based on Context

In some situations, the law implies a duty of confidentiality on certain kinds of information where an unauthorised disclosure occurred. The information itself needs to be confidential, and the way it was shared needs to imply confidentiality as well.

For example, some of the information you draft in your franchise disclosure document could likely qualify as confidential information, such as the particulars of trade marks or information about your franchise system itself, such as the fee structures or supply arrangements. This kind of information is generally not available to the public or your competitors. Therefore, you need to protect this information appropriately when recruiting potential franchisees who read this document.

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How Can I Maintain Confidentiality?

One of the best ways to protect your confidential information is to use confidentiality agreements or appropriate non-disclosure clauses where necessary. A lawyer can help you draft such documents in a way that protects your franchise and advise you on when is best to use them. Furthermore, they can also help you ensure your confidentiality provisions are enforceable should your franchisees breach them. Therefore, these should be signed before any confidential information is released by every party to whom you are providing that information. 

For instance, before you start sharing sensitive franchise information with potential franchisees, have them sign a confidentiality agreement, both in their personal capacities and on behalf of any proposed corporate franchisee. Additionally, this document should outline that they cannot share information that they learn from the inquiry and negotiation process.

Furthermore, if a franchisee leaves your franchise, be sure that you have protections against them sharing confidential information with additional restraint of trade clauses. You can certainly achieve this by having appropriate exit documentation, including a deed that reiterates the confidentiality obligations in the franchise agreement, which typically survive termination of the franchise itself. 

Additionally, conduct appropriate research on your franchisees to determine their character and whether they have had any confidentiality issues in the past. Undoubtedly, you want franchisees that you can trust, as they can access sensitive parts of your franchise that you do not want your competitors to know. Above all, you should only share necessary information with your franchisees.

The Importance of Your Franchise Agreement

Finally, your franchise agreement sets out the contractual terms of your relationship with your franchisees. In this, you should include a non-disclosure clause that sets out how you protect confidentiality in this relationship. You should detail:

  • what information qualifies as confidential and what constitutes the franchisor’s intellectual property;
  • what circumstances entitle both parties to share that information;
  • who they are allowed to share that information with (if anyone); and
  • the consequences of sharing this information without authorisation, including where the franchisee will be deemed liable for any harm or damage suffered; and
  • an obligation to inform the franchisor where the franchisee is aware of an actual or threatened breach of confidentiality or intellectual property rights.

Key Takeaways

In conclusion, how you maintain confidentiality in your franchise will depend on your situation and relationship with your franchisees. Regardless of any other factors, be sure to include confidentiality provisions in your franchise agreement and only share confidential information where necessary.

If you need help with maintaining confidentiality in your franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What is a franchise?

A franchise is a business model that you may use to grow your business. You, as the franchisor, allow other parties, the franchisees, to replicate your business operations to create their own success. In return, you grow your brand and receive various fees or royalties.

How can I protect confidential information in my franchise?

Whenever you share sensitive information, bind the other party with a confidentiality agreement or non-disclosure clause. In particular, ensure you have a non-disclosure clause in your franchise agreements.

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