The Prohibition of the Destruction of Unsold Goods ban that came into force on 19 July 2026 does not exempt franchise networks. But the question of who carries the compliance obligation, and whether your business is caught by the size thresholds, depends on the specific structure of your franchise arrangement. Most franchise operators have not worked through this properly.
The legal position of a franchise
A franchise is, by legal definition, a relationship between legally and financially separate and independent undertakings. The franchisor licenses its brand, systems and know-how. The franchisee operates under that licence as its own independent entity. They are not part of the same corporate group unless there is an equity relationship between them.
This matters for ESPR because the regulation uses EU SME thresholds to determine when the destruction ban applies. Large enterprises (250 or more employees, or annual turnover above €50m) are caught from 19 July 2026. Medium-sized enterprises (50 or more employees, or turnover above €10m) are caught from 19 July 2030. Micro and small enterprises are exempt.
The critical point on group structure: if the franchisor holds a 25% or greater equity stake in the franchisee entity, the franchisee must consolidate the group figures when assessing its own threshold status. A franchisee with 30 employees and €8m turnover that is majority-owned by a large fashion group is classified as a large enterprise and is caught from day one. Genuine independent franchisees with no equity connection to the franchisor are assessed on their own figures alone.
One further threshold question that is often missed: a medium-sized enterprise does not have until 2030 to ignore the problem. Building a compliant disposal infrastructure takes time. Franchisees who are not caught until 2030 need to be building the route now, not in 2029.
UK and EU jurisdiction
ESPR is EU law. It applies to economic operators placing products on the EU market. A UK-based franchisee operating only in the UK has no direct ESPR obligation. A UK franchisor supplying franchisees who operate in EU member states is an economic operator placing goods on the EU market and carries the obligation. A UK franchisee that sells online into the EU is also within scope. The jurisdiction question is not resolved by where your head office sits. It is resolved by where your goods are placed on the market.
What if the franchisee operates multiple locations?
A franchisee running more than one branch under the same legal entity is assessed on its total figures across all locations. Employee headcount and turnover aggregate at entity level, not store level. A franchisee operating five stores, each with twelve employees and €2.5m turnover, has a combined headcount of sixty and combined turnover of €12.5m. That places them in the medium enterprise bracket.
Multi-location franchisees that assumed they were small operators because each individual store is modest in size need to reassess. The legal entity is the unit of assessment, not the branch.
What counts as destruction
The regulation prohibits destruction but does not define it narrowly. Incineration is the obvious case. Landfill is destruction. Shredding for industrial use is destruction. Waste-to-energy conversion sits in a legal grey area that has not yet been tested by enforcement authorities. The derogations that permit destruction are specific: genuinely dangerous products, goods that are non-compliant with law, active IP infringement, products that are physically damaged or have manufacturing defects that make them unsuitable for reuse, or where a documented donation offer has been made and formally rejected. Brand preference, seasonal change, and commercial inconvenience are not derogations. This question carries enough complexity to warrant its own analysis, which we have set out separately.
Unsold stock and returned goods
The destruction ban covers unsold consumer products. It also covers returned goods. A franchisee processing customer returns from the prior season is within scope. The obligation is not limited to new, untouched inventory sitting in a warehouse. Any textile product that has re-entered the supply chain and is at risk of destruction falls under the same prohibition. Franchisees who have a process for unsold stock but no compliant route for customer returns have a gap.
Who owns the stock and why it matters
The obligation sits with the economic operator who holds title to the goods. In most franchise arrangements, the franchisee purchases stock outright and takes title on purchase. The obligation is theirs.
Some franchise supply agreements include retention of title clauses, meaning the franchisor retains legal ownership until the franchisee pays in full. Where retention of title applies, the franchisor may carry the compliance obligation for unsold stock across every franchisee location in their network. Franchisors who have retention of title clauses as standard in their supply terms need to understand that they may have inadvertently accepted the destruction ban obligation for a pool of inventory they do not physically control, spread across an independent network they cannot directly instruct. That is a significant and probably unintended consequence of how those agreements were drafted.
What about a franchise operating inside a department store or multi-brand retailer?
If a brand operates a concession inside a department store, the brand retains title to the stock at all times. The destruction obligation rests with the brand, regardless of where the stock sits physically.
If the brand has sold stock wholesale to the department store, title transfers on sale. The department store is now the economic operator for that inventory.
A franchise operating a branded space inside a department store adds another layer. If the franchisee purchased the stock, the obligation is theirs regardless of the trading environment. If the franchisor supplied on retention of title terms, the obligation may sit with the franchisor even though neither party directly controls the retail space.
Many brands run all three models simultaneously. Each channel has a different compliance owner. A brand that has mapped its directly operated estate but has not traced title and disposal obligations across its franchise and wholesale channels has an incomplete picture of its exposure.
Master franchise and three-tier structures
The above covers direct franchise relationships. Where a franchisor licenses a master franchisee who then sub-franchises to individual operators, the compliance chain has three tiers. The franchisor placed the goods into the supply chain as manufacturer or importer. The master franchisee may have taken title and resupplied. The sub-franchisee may hold title at point of sale. The obligation follows title at each stage, but the franchisor’s position as originating economic operator does not disappear simply because the goods passed through intermediate hands. Three-tier structures need to trace the title chain at every step and assign the disposal obligation explicitly. Most have not done this.
The conflict between brand protection and compliant disposal
Many franchise agreements restrict where and how franchisees can sell branded product. Secondary market channels, off-price retailers, and marketplace platforms are commonly prohibited to protect brand positioning. If a franchisee cannot destroy stock and cannot sell it through unapproved channels, and the franchisor has not provided a compliant route, the franchisee is trapped between two conflicting obligations. ESPR does not override contractual brand protection provisions automatically. But a franchisee facing a regulatory fine for destruction cannot use the franchise agreement as a defence. Franchisors need to resolve this conflict actively, by either approving a compliant disposal route within the franchise terms or building one centrally that the network can access.
What the franchise agreement may be requiring you to do illegally
Many franchise agreements include provisions about what happens to end-of-season unsold stock. Some require return to the franchisor. Some give the franchisor the right to require destruction of stock that does not meet brand standards or is discontinued. Any clause that allows or requires destruction of unsold or returned textiles, without meeting the specific derogations, is now non-compliant. Both parties to such a clause carry risk. The franchisee who acts on the instruction and the franchisor who issues it.
The hierarchy of compliant alternatives
ESPR does not prescribe a strict hierarchy of alternatives to destruction, but the logic of the regulation points clearly toward reuse before recycling. Resale through recommerce or secondary market channels preserves the most value and most closely reflects the regulation’s intent. Donation to charity or social enterprise is compliant where it is genuine and documented. Material recycling is compliant but represents a lower-value outcome. Operators building a compliant route should be building toward the highest-value alternative, not the easiest one.
Documentation and the disclosure obligation
Compliance is not just operational. It is evidential. Operators must retain documentation of disposal decisions for five years. That means records of what stock was disposed of, by what route, and on what basis. Where a derogation was used to permit destruction, the evidence supporting that derogation must be retained and available to market surveillance authorities.
Separately, from March 2027, operators are required to publicly disclose volumes of unsold consumer products, the proportion disposed of by each route, and the reasons for any destruction that occurred. This is a disclosure obligation that sits alongside the destruction ban and applies on the same enterprise size thresholds. For franchise networks, the question of whether the franchisor reports for the whole network or each franchisee entity reports individually has not yet been resolved by published guidance. Franchisors with large networks need to be building the reporting infrastructure now, regardless of how that question lands.
The questions to answer now
Does your franchise agreement include any provision about unsold or returned stock disposal? Who holds title to your unsold inventory under your supply agreement? If you use retention of title terms, do you understand the compliance exposure that creates across your network? Is your franchisee entity connected by equity to the franchisor group, and does that change your threshold classification? If you operate multiple branches under one legal entity, what is your combined headcount and turnover? Across your wholesale, concession and franchise channels, who is the economic operator for each pool of stock? Do your brand protection provisions in the franchise agreement conflict with the disposal routes your franchisees would need to use? And do you have a documentation process in place that would satisfy a market surveillance authority today?
If you do not have clear answers to all of those questions, the compliance gap is open.
RMX works with brand operators and franchise networks to close that gap, build a compliant disposal route, and evidence it correctly. If you want to understand your exposure across your franchise structure, get in touch.
