Franchising and Social Media

Daniel F. So, McKenzie Lake Lawyers LLP

I. What is Social Media?

The definition of “social media”, much like the Internet sites which it purports to describe,
is in a constant state of flux. Once synonymous with the MySpace and Facebook accounts of high
school and University students, the term has, within the past few years, become associated with
an ever-increasing number of social networking sites, including YouTube, LinkedIn, Twitter, Flickr,
and Foursquare. Today, the term “social media” generally refers to any web-based system which
allows users to build a public or semi-public profile within an online community, to construct a list
of users with whom they share a connection, and to view a list of users, including those with
whom they share a connection, within the relevant community.1

II. How Prevalent is Social Media?

The prevalence and perceived influence of social media is perhaps best illustrated by a
relatively recent incident involving Domino’s Pizza. On April 13, 2009, two Domino’s Pizza
employees filmed themselves inside of the store performing unsanitary acts with various pizza
ingredients which would ordinarily be consumed by the restaurant’s customers. The employees
subsequently posted the video on YouTube, where it received more than one million views within
forty-eight hours. During this same period, reference to the incident appeared in five of the first
twelve Google search results for “Domino’s”, and discussions about the restaurant spread rapidly
throughout Twitter. Upon learning of the video’s dissemination and accompanying online frenzy,
Domino’s Pizza embarked on a robust social media campaign in response. Instead of relying on a
more traditional means of public engagement, such as a press release or pubic television
statement, the company sought to target as many members of the public as possible, in the most
expedient manner possible, by employing the same mode of mass communication used by the
Domino’s Pizza employees.
On April 15, 2009, only two days after the initial video posting, Patrick Doyle, President of
Domino’s Pizza USA, stated “[r]ecently we discovered a video of two Domino’s team members
who thought their acts would be a funny YouTube hoax. We sincerely apologize for the incident”.
He stated, further, that Domino’s Pizza would be taking legal action against the employees
responsible for posting the video, that their employment had been terminated, and that the store
1
P. Haans Mulder and Nicholas R. Dekker, “Social Networking: Your Business Clients and Their Employees Are Doing It… Are You Advising
Your Clients on How to Manage the Legal Risks?”, The Michigan Business Law Journal (Summer 2010) at 44 [Mulder].
in which the video was set would be temporarily closed for inspection and sanitization. The
company also created a Twitter account, @dpzinfo, from which it tweeted statements such as
“[t]o all that have messaged, RT’d or given a vote of confidence: THANK YOU! It’s been a heck of a
day, but we’re glad to be out here with you”.
Since the Domino’s Pizza incident, public use of social media has become even more
pervasive. Between 2009 and 2010, the number of adult Internet users within the United States
who have a social networking profile increased from thirty-five percent to fifty percent, up from a
mere eight percent in 2005.2 During this same period, the average time spent on social
networking sites increased by 143 percent.3 Of the most well-known social networking sites,
Facebook, Twitter and LinkedIn have experienced the most rapid growth. At the time of writing,
Facebook had more that 500 million active users, fifty percent of whom log on to their accounts at
least once per day. The average Facebook user has 130 friends and is connected to eighty
community pages, groups and events.4 Twitter currently experiences approximately 140 million
Tweets per day. Whereas it took eighteen months for Twitter’s membership to reach 500,000
accounts, the system now sees that same number of accounts being created on a daily basis.5
LinkedIn’s membership currently consists of more than 100 million members in over 200 countries
and territories. In addition, more than 1 million companies have LinkedIn Company Pages, which
allow companies to share their corporate story, describe their culture, mission and values, list
awards, statistics and milestones, provide location-related information, and share details
regarding corporate projects and philanthropy.6 As the foregoing statistics suggest, non-
participation in social media is simply not in the best interests of any business seeking to grow, or
even maintain, its existing customer base.
Various franchisors, recognizing the value inherent in social networking, have developed a
strong social media presence. The following franchisors, according to a recent study by
FranchiseHelp, are the top ten most “liked” Facebook users: McDonald’s, Buffalo Wild Wings,
Subway, Pizza Hut, Dunkin Donuts, KFC, Dairy Queen, Ben & Jerry’s, Baskin-Robbins, and Papa
John’s.7

2
Mulder, supra note 1 at 44.
3
Ibid.
4
“Facebook Statistics”, Press Room, accessed online: http://www.facebook.com/press/info.php?statistics (March 12, 2011).
5
“#numbers”, Twitter Blog, accessed online: http://blog.twitter.com/ (March 12, 2011).
6
“About Us”, LinkedIn Press Room, accessed online: http://press.linkedin.com/about/ (March 12, 2011).
7
FranchiseHelp, “2011 Franchises in Social Media Ranking: Franchises on Facebook”, accessed online:
http://www.franchisehelp.com/blog/2011-franchises-in-social-media-ranking-franchises-on-facebook (April 1, 2011).
III. What are the Legal Implications of Using Social Media in the Franchising Context?
It is undeniable that social media is replacing traditional means of communication,
networking and marketing and, consequently, that businesses which fail to establish and maintain
a strong social media presence risk losing their competitive edge within the market.
Unfortunately, however, a business’ use of social networking sites is not without its fair share of
legal pitfalls, particularly in the franchising context.

(a) Advertising
Most, if not all, franchise agreements contain rigid advertising requirements aimed at
strengthening the brand and system in a tasteful and consistent manner acceptable to the
franchisor. The emergence of social networking sites, perhaps unsurprisingly, has both helped and
hindered this objective. On the one hand, social media represents a cost-effective means by
which (a) the franchisor can promote and expand brand awareness, and (b) franchisees can
comply with their contractual obligation to engage in local advertising initiatives. On the other
hand, the ease and rapidity with which a franchisee or its employees are able to post content on
social networking sites makes it difficult, if not impossible, for the franchisor to effectively monitor
the manner in which the system is portrayed to the public. Further, where the franchisor is able,
as a result of the language of the franchise agreement, to restrict the manner in which a franchisee
uses social media in connection with the franchised business, the franchisor may encounter
opposition from the franchisee, who will likely want to take advantage of the widespread and
inexpensive advertising opportunities which social media provides. In order to overcome this
challenge, the franchisor must be prepared to provide the franchisee with a clear and well-
articulated justification as to why the unfettered use of social media is not in the system’s best
interests and, further, how the franchisee stands to benefit from a consistent approach to
marketing. This information should be published directly within the operations manual or on the
intranet website in order that franchisees cannot subsequently claim that they were unaware of
the franchisor’s position with respect to the use of social media for advertising purposes.

(b) Endorsements and Testimonials

On a somewhat related point, franchisors looking to expand into the United States must
be aware of recent changes to the Federal Trade Commission’s Guides Concerning the Use of
Endorsements and Testimonials in Advertising (the “Guidelines”), a series of administrative
interpretations of the Federal Trade Commission Act aimed at assisting advertisers in complying
with their statutory obligations. Pursuant to the Guidelines, advertisements which convey a
consumer’s experience with a product or service must disclose the results which consumers may
generally expect, unless the experience conveyed is typical for all customers. The Guidelines also
require that an advertiser disclose any and all material connections between it and the endorser.
The Guidelines state, by way of example, that a blogger who receives payment in exchange for
reviewing a product or service must disclose this fact to consumers. Likewise, if a company
advertises the findings of a research organization which it sponsored, the advertisement must
disclose the financial connection between the advertiser and the organization. The Guidelines
make it abundantly clear that the foregoing disclosure obligations apply within and beyond the
traditional advertising context and extend, in particular, to the use of social media.8

(c) Trade-Marks and Copyright

Trade-marks, trade names and service marks (the “Marks”) are among the franchisor’s
most valuable assets. This reality is reflected in the language of the franchise agreement which
will typically impose a number of restrictions on the franchisee’s use of the Marks, including a
requirement that the franchisee use the Marks in a manner authorized and permitted by the
franchisor, that the franchisee use the Marks only in connection with the franchised business, that
the franchisee identify itself to the public as a licensee of the Marks, and that the franchisee not
use the Marks, or any part of the Marks, as a component of its corporate or other legal name.
Given that improper use of the Marks reflects poorly on the system as a whole, franchisors are
strongly advised to ensure that the language of their franchise agreement makes it absolutely
clear that all Marks-related restrictions apply with equal force regardless of the particular manner
in which the Marks are being used. Unfortunately, franchisees may simply be unaware that they
are not permitted to identify themselves using the franchisor’s Marks within social networks. It is
thus in the franchisor’s best interest to provide the franchisee with a clear policy regarding its
stance on the use of social media in connection with the Marks. In particular, the franchisor
should establish a specific naming convention for all franchisees. The franchisor may require, for
example, that every franchisee which creates a Facebook account identifies itself by the name of
the franchise followed by the location of the franchised business. In addition, the franchisor may
wish to provide the franchisee with a sample notice which can be displayed alongside the
franchisor’s Marks on all social media sites used by the franchisee. The franchisor’s ultimate

8
Federal Trade Commission, “FTC Publishes Final Guides Governing Endorsements, Testimonials”, News, accessed online:
http://www.ftc.gov.opa/2009/10/endortest.shtm (March 21, 2011).
objective in so doing is to ensure that the brand’s integrity is at all times maintained and that there
exists no potential for confusion within the marketplace regarding the ownership of the Marks by
the franchisor.
Depending on the nature of the franchise system, the franchisor may also hold copyright,
broadly defined as the right to produce or reproduce a work or any substantial part thereof in any
form whatsoever, in one or more works. The franchisor will, regardless of whether it registers its
copyright with the Canadian Intellectual Property Office, hold a proprietary interest in every
original work which it creates, including operations manuals, promotional materials, product
specifications and descriptions, computer programs, recipes and the appearance of informational
brochures. Although the franchise agreement will likely provide the franchisor with a considerable
degree of protection against copyright infringement, franchisors must ensure that franchisees
understand their contractual obligations as they relate to social media specifically. While most
franchisees recognize the danger, both from a contractual and proprietary perspective, of creating
and distributing copies of the franchisor’s operations manual, franchisees might not realize that
posting the operations manual, or a portion thereof, on a Facebook or LinkedIn page, despite the
fact that it does not result in a physical reproduction of the work in the ordinary sense, will still
amount to infringing activity. It is the franchisor’s responsibility to ensure not only that the
franchisee is aware of its contractual obligations with respect to copyright, but also how these
obligations play out in the realm of social media.

(d) Confidentiality
There are also confidentiality-related concerns which arise as a result of the franchisor’s
acceptance and utilization of social media. The potential for inadvertent disclosure of the
franchisor’s trade secrets and confidential information is considerably higher in the electronic, as
opposed to physical, world. With the emergence of social networking sites such as Facebook and
Twitter has come a shared desire on the part of members to provide and receive a steady stream
of updates regarding the daily activities of themselves and others. The difficulty with this practice,
from the franchisor’s perspective, is that these updates may contain information which the
franchisee is not permitted to disclose pursuant to the franchise agreement. Updates such as
“unpacking delivery from Schneider’s”, “at 123 King Street training” , and “grossed $8,000 today”,
although seemingly benign, contain information which would ordinarily be subject to non-
disclosure provisions, namely, the source of the franchisee’s inventory, the location of training
programs, and the gross revenues of the franchised business. This is not to suggest that the same
information could, or would, not be disclosed by way of mouth or some other means of
communication, but rather, to emphasize the potential for inadvertent widespread dissemination
of confidential information relating to the franchisor. A social media policy which brings this
concern to the franchisee’s attention may decrease the likelihood of such disclosure, whether
inadvertent or intentional, from occurring in the first place.

(e) System Integrity

The franchise agreement, being a contract between the franchisor and the franchisee,
provides the franchisor with little authority, short of pursuing an action for libel, slander or
defamation, to restrict the manner in which employees of the franchisee portray the franchise
system to the public via social media. As the policing of employees’ social media usage in
connection with the franchised business falls primarily to the franchisee, franchisees should be
made aware that they are within their rights to pursue appropriate steps, including termination,
where their employees’ use of social media is inappropriate.
A recent decision of the British Columbia Labour Relations Board (the “Board”), however,
suggests that adjudicators are willing to uphold an employee’s termination where the employee
uses social networking sites to post comments which are derogatory toward the employer. In
Lougheed Imports Ltd. (c.o.b. West Coast Mazda) (Re),9 the Board held that an employee does not
have a legitimate expectation of privacy when publishing comments on Facebook, regardless of
where and when the publication took place, or whether the employer had a policy prohibiting
inappropriate Facebook postings in place. While the Board’s decision is not binding on either
Ontario courts or administrative tribunals, it is valuable to the extent that it acknowledges the
harm which an employee can cause by simply posting comments regarding the employer on a
social networking site. Franchisors are encouraged, in light of this decision, to provide franchisees
with a model policy which prohibits the posting of negative content in relation to the franchisor or
the franchise system by employees of the franchisee and, further, allows the franchisee to take
disciplinary action against a non-compliant employee. As the integrity of the brand depends, in
large part, on how employees of the franchisee portray the system to the public, it is in the best
interests of the franchisor to assist the franchisee in implementing and enforcing a robust social
media policy within the workplace.

9
[2010] B.C.L.R.B.D. No. 190.
IV. How Can Franchisors Overcome the Challenges Associated with Social Media?
The introduction of social media into a franchise system, while challenging, need not be
fraught with concern. Where the franchise agreement and operations manual deal specifically
with the franchisee’s ability to use social media in connection with the franchised business, the
franchisor will possess the tools necessary to ensure that social media works with, rather than
against, the franchise system.

(a) Proper Use of Trade-marks and Trade Names

Social media and networking, at least from an intellectual property perspective, can be a
delicate balance. On one hand, the identification of the franchise system in a number of social
media/social networking outlets can be of significant benefit to the franchisor. On the other hand,
the inappropriate use of the trade-marks and trade names associated with the system by one or
more franchisees stands to dilute the value and enforceability of same. Accordingly, the franchisor
may wish to expand the existing “Trade-marks” section of its franchise agreement in the following
manner:
Franchisee may not take part in, author, publish, or otherwise post on any web-based forum or
“web-blog”-based publication on the Internet in relation to the System, or its operation of a
Franchised Business, without Franchisor’s prior written consent. Franchisee is additionally
prohibited from taking part in, authoring, publishing, or otherwise posting any of the Marks or
information about the System on the Internet without Franchisor’s prior written consent.
Franchisor shall have the sole authority to represent the Marks and the System on the Internet, and
Franchisee shall not have any rights to maintain a website or other Internet presence relating to the
Marks or the System without the prior written consent of Franchisor.

Franchisor’s prior written consent must also be obtained in relation to Franchisee’s social media
and networking exposure, advertising, and marketing. Without limiting the generality of the
previous statement, Franchisee shall neither keep nor maintain, in connection with the Franchised
Business, Twitter accounts, Facebook pages, or LinkedIn accounts except within the parameters of
the social media policy of Franchisor as may be developed and amended from time to time, or
without the prior written consent of Franchisor.

Franchisee may not, without the prior written consent of Franchisor, take part in, or promote the
Franchised Business through group-buying websites or online couponing websites, without the
prior written consent of Franchisor.

Franchisor explicitly reserves the right to develop, at its sole discretion, applications, programs, or
location-based mobile platforms for mobile phones, mobile devices and computers in relation to
the System, and Franchisee shall not develop, publish, or distribute, for a fee or otherwise, any such
applications, programs, or location-based mobile platforms in connection with its operation of the
Franchised Business, or in connection with the System.
(b) Franchisor’s Right to Remove
A franchisor which permits social media and networking among its franchisees must also
serve as an editor of the content posted thereon. The franchisor’s policy must clearly set out the
nature and types of discussions which may take place within the social media realm, as well as the
franchisor’s right to remove content which does not accord with this policy. Religious and political
discussions, for example, should be strictly prohibited and removable at the franchisor’s sole
option. Similarly, the franchisor should reserve the right to immediately remove any content
which is rude, crude or inappropriate, or which violates the terms of the franchise agreement, or
any laws or regulations of the jurisdiction in which the franchisee is located. Such provisions
should resemble the following:
As consideration for the Franchisor’s permission granted to you, pursuant to this Social Media
Policy, to post comments, links or other material on the Franchisor’s authorized social media
outlets and/or sponsored websites, you grant the Franchisor the irrevocable right to reproduce,
distribute, publish, display, edit, modify, create derivative works from, and otherwise use your
submission for any purpose in any form on any media. In so posting, you agree that you will not:

(a) post any material that infringes upon the rights of the Franchisor, or any third party,
including intellectual property or privacy rights;

(b) post any material that is unlawful, or which is obscene, defamatory, libelous, threatening,
harassing, abusive, slanderous, hateful, or embarrassing to any other person, entity,
corporation or group, as determined by the Franchisor in its sole discretion;

(c) post advertisements or solicitations for business not specifically approved by the
Franchisor as to form and content;

(d) post an identical comment more than once (“spam” or “thread bumping”);

(e) impersonate another person;

(f) allow any other person or entity to use your online identification or passwords for posting,
viewing, or amending comments.

Any unauthorized use or infringement of the Social Media Policy may result in the removal of the
impugned post in its entirety or in part, without notice and without liability to you.

(c) Disclaimer and Indemnity

The franchise agreement should, wherever possible, require that the franchisee post a
conspicuous disclaimer assuming any and all liability which might arise as a result of its use of
social media. Just as the franchisee has an obligation to identify itself as an independent
contractor subject to a license agreement, a carefully drafted disclaimer may assist the franchisor
from dissociating itself from potentially damaging social media content. The indemnity provisions
of the franchise agreement should also be expanded to include the franchisee’s use of social
media such that the franchisee, as opposed to the franchisor, bears the financial responsibility for
any irresponsible use. Sample disclaimer language appears below.
The opinions reflected by the postings on this website are those of the individual posters, and do
not necessarily reflect the opinions or interpretations of the Franchisor, the officers and directors of
the Franchisor, or of the System generally. The opinions reflected in these postings are our
responsibility, and we assume sole liability from all users of this site wherever or whenever such
liability may exist.

(d) Best Practices

The franchisor should, in addition to revising its franchise agreement and operations
manual to incorporate the foregoing provisions, adopt the following general approaches to social
media:
1. Conduct research on the various social networking sites available in order to determine
which systems best suit the needs of the franchise system;

2. Create a social media policy which clearly outlines the specific social networking sites
which franchisees are permitted to use in connection with the franchised business, as well
as the type of content which franchisees are permitted to post thereon;

3. Dedicate sufficient resources to ensuring that franchisees are complying with the social
media policy and, further, that franchisees are monitoring the social networking activity of
their employees;

4. Implement a zero-tolerance policy for non-compliant franchisees;

5. Remain current on social networking trends and emerging advertising opportunities.

V. Conclusion
Social media has quickly become one of the most widely and frequently used means of
public communication and exposure. Franchisors are thus encouraged to adopt policies and
procedures which permit them and their franchisees to take advantage of the various advertising
opportunities which social networking outlets provide. Where the franchisor acknowledges, in
advance, the challenges associated with social media usage and adapts the language of its
franchise agreement and operations manual to reflect same, the introduction of social media into
the franchise system can be relatively concern-free. So long as the franchisor establishes clear
requirements regarding social media usage and commits sufficient resources to ensuring that
franchisees and their employees comply with such requirements, a franchise system has little to
lose and everything to gain by developing a strong social media presence.