Generative AI and Franchising

Generative Artificial Intelligence (Generative AI) refers to AI systems that generate content based on patterns learned from data. Generative AI is a tool that can be used to drive efficiency in many sectors.

Global and established franchisors have been quick to adopt AI for document review, financial projections, growth strategy and marketing. While it offers great benefits and efficiencies in the franchising space, Generative AI is not without risk and it cannot replace legal advice, human judgement and business acumen, particularly given that it lacks contextual understanding, which can lead to critical oversights. These risks must be understood and managed.

Legal considerations 

Currently, Australia and New Zealand lack specific regulations to manage the use of Generative AI. However, at a general level, franchisors are still required to comply with existing laws such as the Fair Trading Act 1986 and Contract and Commercial Law Act 2017 in New Zealand, and the Competition and Consumer Act 2010 in Australia. Misuse of Generative AI output can inadvertently breach these laws and regulations (i.e. by providing false or misleading representations), resulting in significant legal and financial repercussions. 

Enhancing efficiency while minimising risk

Some essential dos and don’ts for franchisors when using Generative AI:

Dos:

Understand its capabilities and limitations: AI can streamline document reviews and financial projections, and inform expansion forecast decisions, but it cannot replace legal or business judgement. Use it as a tool, not a substitute for expert advice.

Combine with human expertise: Lawyers assess franchise agreements and operational decisions beyond AI-generated insights. Generative AI may oversimplify the data it is provided. 

Use insights for further analysis: AI can highlight important terms and operational trends, but human interpretation remains crucial to understanding their implications.

Don’ts:

Upload confidential information to public AI tools: Under no circumstances should confidential information about franchisees or commercially sensitive information be uploaded to public AI tools. Once uploaded, all information becomes publicly available for other users and may breach confidentiality obligations.  

Assume AI-generated content complies with regulations: AI is only as good as the data that has been inputted. For example, AI generated processes, systems or template documents may not reflect FANZ obligations or the Australian Franchising Code of Conduct.  Expert legal advice is required to ensure legal compliance and enforceable contracts.  

Rely solely on AI for decision-making: Franchise operations involve nuanced discussions that require human judgement and strategic negotiation. Generative AI does not have knowledge of the franchisor’s growth objectives, brand strategy or risk profile and cannot be relied on to make decisions.  

Engaging legal and business professionals alongside AI ensures franchise systems and operations are compliant with law and aligned with business objectives and franchisors are protected. 

By Wynn Williams Partner Katrina Hammon and Associate Miriam Doak

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