It would be the understatement of this new era to opine that AI will alter the franchise world. It will certainly have an impact. On this point, everyone agrees. Yet, we may disagree on the degree of change. The immediate question is how it will change franchise businesses across a multitude of industries (concepts). 
This article is our toe-test into the waters of franchise/AI.  We hope you will find this article helpful – as we all struggle to wrap our heads around this ground-breaking technology.

As artificial intelligence continues to evolve, its integration into the workplace is becoming increasingly common across the world’s industries. For franchise business owners (both franchisors and franchisees), awareness of the legal and ethical implications of AI in the workplace is essential to harness its benefits, while mitigating its risks. This blog begins to explore the influence of AI technology in franchising, and, specifically, the legal and ethical challenges looming over our horizon.

AI technology is transforming the way businesses operate, offering tools that enhance efficiency, productivity decision-making, content creation and customer engagement. From automating routine tasks to providing valuable insights through data analysis, AI in business is reshaping traditional workflows and may create new opportunities for growth. According to a Forbes article on the impact of AI on the future of work (June 2024), AI is not only being adopted by large corporations, but also by small to medium-sized businesses. Therefore, this shift requires franchise owners to stay informed about proposed AI regulations and the potential legal and ethical concerns regarding AI in the workplace.

The integration of AI may offer benefits that can assist franchise systems streamline operations and remain competitive. AI management tools may optimize inventory, automate customer service with chatbots, and personalize lead generation and other marketing strategies. It is asserted that projects such as extensive market research might now be completed in minutes instead of days. Further, these applications might lead to increased efficiency, cost savings, and enhanced customer experiences. Moreover, we hear that AI and data analytics allow businesses to make data-driven decisions, helping them understand market trends and customer behavior more effectively.

AI may also support compliance efforts by automating regulatory reporting and monitoring franchisee adherence to the franchise agreement, and the franchisor’s manual. This may not only reduce the franchisor’s administrative burden, but also minimize the risk of human error in essential franchise compliance tasks.

However, while AI might bring significant advantages, it will certainly introduce new challenges, particularly with legal compliance and ethical AI use.

Legal Implications of Using AI in the Franchise Workplace

As AI becomes more embedded in franchise business operations, franchisors and franchisees must learn the legal implications associated with its use. Especially those related to the acquiring and protecting of customer-provided data. Another challenge will be ensuring AI compliance with federal and state labor regulations. These issues are far too complicated (and still evolving), to address adequately at this point in time.

Yet, the former issue, customer-provided data, deserves immediate attention given its critical importance (have you been following the news that all of our Social Security data may have been breached?). Data privacy is a critical area where AI’s impact is being closely scrutinized. AI systems often require access to vast amounts of data to function effectively. This raises concerns about data privacy and the potential misuse of sensitive information. (For more insight, see this Harvard Business Review article on the ethics of managing people’s data (July-August 2023), which  highlights the importance of protecting customer and employee data from breaches or unauthorized access.)

Franchisors must verify that their AI systems abide by data privacy regulations, implement robust cybersecurity measures and maintain transparency about data collection, storage (protection), and intended use (customer/employee permission). Additionally, franchisors should ensure that their franchisees are thoroughly prepared through formal training, so that they may competently address these AI-related issues with both customers and their employees. This duty will add to the contractual support obligations of franchisors to their franchise-investors, which is fundamental to a healthy franchise system.

Ethical Considerations in AI Implementation

Beyond legal compliance, ethical AI use is a concern for businesses integrating AI into their operations. Ethical AI practices involve using AI technology responsibly, ensuring that it aligns with societal values and does not cause harm. For example, AI systems should be designed to operate transparently, allowing users to understand how decisions are made. (See the McKinsey report on the ethical use of artificial intelligence in business operations (2019).)

Conclusion

The integration of AI in the franchise workspace presents both opportunities and challenges for franchisors and franchisees. While AI technology can drive business growth and improve operational efficiency, it also carries with it legal implications and ethical considerations, which should be considered before investing decisions are made. By staying informed about AI regulations, data privacy concerns, and the ethical use of AI, franchise owners can better navigate the complexities of AI compliance and ensure that their AI systems are both legal and ethically responsible – and further improve the franchise system for both the franchisee-investors and the system’s customers.

As AI business trends (Forbes, June 2024) continue to evolve, it is important for franchise systems to adapt and stay profitable. Franchisors should consider leveraging AI’s potential to enhance their systems, while safeguarding against legal risks and ethical pitfalls. Franchisees, as both investors and employers, should be conversant with State laws related to AI, as they will be directly responsible for compliance as it relates to their employees and the customers.

Let Kilcommons Law PC be your trusted partner in navigating the franchise legal landscape, ensuring that your business remains compliant and ethical in an increasingly AI-driven world. Let’s swim these rough currents together!

© Kilcommons Law, P.C. 2024