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Legal changes

Greater clarity urgently needed on new rules relating to high fat salt and sugar products and their application to franchises and symbol groups

New rules around high fat, salt and sugar products sold by retailers, coming into force in October, leave franchises and symbol groups in the dark.

In our previous article, we discussed the forthcoming legislation which is expected to come into force on 1 October 2022 to limit the promotion and placement of high fat, salt and sugar products by retailers.

There has been widespread criticism within the retail industry concerning the lack of clarity about the inclusion of symbol groups and franchises and whether they are caught by the new restrictions.

Qualifying businesses — franchises

The Food (Promotion and Placement) (England) Regulations 2021 (HFSS Regulations) apply to ‘qualifying businesses’ with 50 employees or more (with some limited exemptions).

Regulation 4(1) of the HFSS Regulations sets out a lengthy definition of what constitutes a ‘qualifying business’. It indicates that in determining the number of employees of the business, a business that is carried on pursuant to a ‘franchise agreement’ is to be treated as part of the business of the franchisor and not as a separate business carried on by the franchisee. Therefore, it is the total number of employees operating as part of the overall franchise that is relevant, not the number operating under the individual franchise agreement.

A ‘franchise agreement’ is further defined by the HFSS Regulations as existing where one undertaking (the franchisee) and another undertaking (the franchisor) agree that the franchisee carries on a business activity which includes the sale or distribution of food (the franchise business) and the following paragraph applies to the business:

  1. the food provided in the franchise business
  2. the internal or external appearance of the premises where the franchise business is carried on; and
  3. the business model used for the operation of the franchise business is agreed by the franchisor, and is similar to that of other undertakings in respect of which the franchisor has entered into comparable contractual arrangements.

Application to symbol groups

The majority of franchise businesses will be caught by this definition as there is usually a franchise agreement in place which stipulates the food to be provided, the appearance of the premises and the operational business model. However, this is not always the case for symbol groups where there may be arrangements in place facilitating the ordering of stock and the use of branding, but there may be much more autonomy in relation to the business model and how the business is operated.

New guidance published by the Department of Health and Social Care on 6 April 2022 states that the Regulations do apply to franchises and symbol group stores:

If symbol group retailers operate as part of a franchise arrangement where the total sum of employees operating under the franchise are at least 50, they are therefore in scope of the regulations.”

However, importantly the guidance also indicates that when considering the franchise/symbol group business, the three features (a-c) collectively render it a franchise. This suggests that the definition of ‘franchise agreement’ applies to businesses who have an agreement in place for the sale or distribution of food which includes provisions about the food to be provided, the appearance of the premises and the business model to be used. If the symbol group agreement does not contain provisions covering all of these matters, it is arguable that the HFSS Regulations do not apply.

Enforcement

The HFSS Regulations will fall to trading standards or environmental health officers to enforce. The guidance encourages enforcement authorities to be pragmatic in their enforcement approach and to focus on supporting compliance rather than penalising non-compliance.

In order to seek to ensure that our clients are ready for the roll out of the new restrictions, our team of regulatory lawyers at Weightmans have been advising franchise businesses and symbol groups on the application of the HFSS Regulations in light of the latest guidance.  Please do contact us for further information about how we can assist.