Who Controls Customer Data in Franchise Systems? Key Privacy Risks and Best Practices

As franchise systems become increasingly reliant on digital platforms, loyalty programs, online ordering services, and centralized point-of-sale (“POS”) systems, the collection and use of customer data has become an essential part of day-to-day operations. With this increasing reliance on digital technologies comes privacy-related obligations for franchisors and franchisees alike.

Canadian privacy laws regulate the collection, use, and disclosure of “personal information,” meaning information about an identifiable individual. Importantly, an individual does not need to be directly identified – information may still qualify as personal information where there is a serious possibility that the individual could be identified from that information. British Columbia,^[1] Alberta,^[2] and Quebec^[3] have generally applicable private-sector privacy laws that have been declared substantially similar to the federal Personal Information Protection and Electronic Documents Act (“PIPEDA”).^[4] In those provinces, the provincial legislation may apply instead of PIPEDA, while the remaining provinces are subject to PIPEDA. As a principles-based statute, PIPEDA establishes broad privacy obligations rather than bright-line rules.

The franchise model creates unique challenges related to privacy compliance because personal information is often shared among franchisors, franchisees, and third-party service providers. Determining who is responsible for protecting that information, maintaining compliance with privacy legislation, and responding to data breaches can be complicated. The following are some of the key privacy risks facing franchise systems and steps that franchisors and franchisees can take to mitigate them.

Key Privacy Risks & Considerations

Uncertainty Regarding Control and Responsibility for Customer Data

One of the main challenges in franchise privacy compliance is deceptively simple: whose data is it? Under the private sector privacy laws, organizations remain accountable for personal information within their control. Typically, an organization will be considered in control of personal information when it has the authority to determine how the information is collected, used, disclosed, retained, and disposed of. An organization remains accountable for personal information transferred to a third-party for processing on its behalf and must use contractual or other means to provide a comparable level of protection. Where information is instead disclosed to an independently operating franchisee or other organization for that organization’s own purposes, the parties’ respective responsibilities will depend on the circumstances, including who determines the purposes and means of collection, use, disclosure, retention, and disposal.

It is common for both franchisors and franchisees to collect and distribute personal information across their respective networks, as well as to third-party service providers. This data may be distributed for a number of reasons, including for marketing campaigns, sales reporting, and loyalty programs. For example, a franchisor may obtain identifiable sales data from a franchisee, and a franchisee may share customer information with a food delivery platform or other vendor. This complex and frequent exchange of information can make it difficult to determine who controls the data where clear roles and responsibilities have not been established. Accountability over the information becomes even more challenging when franchisees within the same franchise system employ inconsistent methods of data collection and consent practices. Because privacy legislation imposes obligations on organizations that control personal information, ambiguity surrounding who has that control can make it harder to comply with the law.

Increased Exposure to Cyber Attacks and Data Breaches

Another major area of concern for franchisors and franchisees alike is the risk of cyber attacks. Franchise systems are attractive targets for hackers because they often rely on shared POS and IT systems to store large volumes of customer information across numerous locations. As a result, a data breach at a single franchise location may have consequences for multiple franchisees and the franchisor itself. Although shared technological systems can increase efficiency for the franchise network as a whole, they may also increase the potential impact of a security incident. Beyond the immediate disruption to business, a data breach can expose a franchise system to reputational harm, the disclosure of confidential business information, regulatory investigations, audits, complaints, and potential civil liability.

For these reasons, it is important that franchisors and franchisees keep their privacy-related obligations in mind, in order to avoid accidental non-compliance with the law as well as to protect the franchise system.

The following is a list of best practices that can help mitigate privacy risks and strengthen compliance across the franchise network.

Best Practices for Franchise Privacy Compliance

Clearly Define Control Over Customer Data

Because information frequently moves between franchisors, franchisees, and third-party vendors, clearly defining responsibility for that information is one of the most important steps a franchise system can take to strengthen privacy compliance. Under PIPEDA, organizations are obligated to protect transferred personal information via “contractual means”.^[5] Where the information is passed between franchisor and franchisee, the parties should address the control and use of any customer information in the franchise agreement, an ancillary agreement, or the franchisor’s operations manual. Where a third-party service provider is involved, the franchisor or franchisee should ensure any contract between the parties includes an adequate data protection agreement or data protection provisions in the service agreement.

Before entering these contracts, franchisors and franchisees should consider what personal information is being exchanged, whether the information is necessary for the services provided, and how consent can be adequately obtained from customers. Any agreement should also specify which party is responsible for obtaining consent and for safeguarding the data. When contracting with third-parties, franchisors and franchisees should ensure the agreement allows them to maintain adequate control and protection over the use of the information by the service provider.

Implement Consistent Privacy and Consent Practices Across the Franchise System

Consistency across the franchise network is also critical in privacy compliance. As discussed above, franchise systems often involve numerous franchisees collecting and processing customer information in various ways. Without standardized privacy and consent practices, franchisors may find it difficult to ensure compliance with privacy laws across the system and may face increased regulatory risk. Franchisors should therefore implement uniform standards across the system when it comes to obtaining customer consent and handling customer data. Privacy policies and consent practices should also be updated on a regular basis to ensure they remain current and accurately reflect how customer information is being collected, stored, and used by the organization. Each organization subject to applicable privacy legislation should designate an individual responsible for its compliance. A franchisor may also appoint a privacy lead to coordinate standards and oversight across the franchise system.

Adopt a Data-Minimization Approach

Limiting the amount of personal information collected in the first place can help reduce privacy risk and makes compliance with privacy legislation easier. Under PIPEDA, the collection of personal information must be limited to what is necessary for purposes identified by the organization, and those purposes must be ones that a reasonable person would consider appropriate in the circumstances.^[6] Franchisors and franchisees should therefore carefully evaluate what information is truly required for their business operations and avoid collecting unnecessary data.

A data minimization approach also has the added benefit of reducing the organization’s obligations to manage, secure, and retain the information appropriately. Collecting only what is necessary reduces the amount of data that the organization is responsible for and can lessen the potential impact of a cyber attack or data breach. Organizations should not ordinarily make access to a product or service conditional on consent to collection, use, or disclosure that is unnecessary for that product or service. Secondary uses such as marketing should be clearly explained and supported by an appropriate form of consent, subject to any applicable statutory exceptions.

Strengthen Cybersecurity Practices

Franchisors should also take steps to strengthen their technology and cybersecurity practices across the franchise system. Operations manuals should set out cybersecurity standards and include clear IT hardware and software requirements for franchisees. Cybersecurity threats are constantly evolving, and a system that was once considered safe several years ago may no longer offer sufficient protection today. Franchisors should therefore regularly review and update their technology standards to ensure they can adequately respond to emerging risks. Franchise agreements and operations manuals should also clearly outline who is responsible for managing the aftermath of a breach.

In addition, franchisors should provide ongoing training and guidance to their franchisees on the collection, storage, and protection of customer information, including how to recognize and respond to phishing attempts. Finally, given the high rate of employee turnover in the retail and food service industries, franchisees should periodically update passwords and maintain security measures to reduce the risk of unauthorized access to sensitive information.

Prepare for Data Breaches Before They Occur

Because franchise systems are particularly attractive targets for cyber attacks, franchisors should prepare for a breach before one occurs. A comprehensive crisis plan can help reduce operational disruptions, ensure compliance with privacy legislation, and minimize harm to customers and the franchise brand. The plan should clearly identify who is responsible for managing each aspect of the response and require franchisees to cooperate with the franchisor throughout the process. Additionally, organizations are subject to reporting and record-keeping obligations under PIPEDA in the event of a breach. For example, organizations subject to PIPEDA must maintain records of all breaches of security safeguards involving personal information under their control. Where it is reasonable to believe that a breach creates a real risk of significant harm to an individual, the organization must also report the breach to the Office of the Privacy Commissioner of Canada and notify affected individuals.

Conclusion

Privacy compliance is not only a legal issue but an operational and reputational concern as well that affects the entire franchise system. The interconnected nature of franchise relationships can make it difficult to determine responsibility for customer information and can increase exposure to cybersecurity risks. By implementing clear and consistent privacy practices across the entire franchise system, minimizing data collection, and adequately preparing for cybersecurity threats, franchisors can better protect both customer information and the franchise as a whole.

How Sotos Can Help Franchise Systems with Privacy Compliance

Privacy compliance in a franchise system often sits at the intersection of franchise agreements, operations, technology, cybersecurity, and third-party relationships. Sotos LLP can help franchisors assess how personal information moves through their systems, clarify responsibilities between franchisors, franchisees, and service providers, review privacy and data-protection provisions in franchise and vendor agreements, and develop practical privacy policies and incident-response protocols.

If you have questions about privacy compliance in your franchise system, contact Jason Brisebois by email at jbrisebois@sotos.ca or by phone at 416.572.7323 to discuss how these issues may apply to your system.

About the authors:

Jason Brisebois advises franchisors and other businesses on privacy and data protection, including privacy compliance, commercial agreements involving data, and privacy considerations in franchise and technology arrangements. He received the 2024 Lexology Client Choice Award and has been recognized by the Canadian Legal LEXPERT Directory, Lexology Index: Canada, and Best Lawyers in Canada.

Chrisoula Angelis is a 2026 summer student at Sotos LLP and contributed to the research and preparation of this article.