How to Litigate Franchise Disputes
4 min read
Any business person won’t think twice when presented with an opportunity to run a franchise. Unfortunately, even the most successful franchises can be brought to a halt when business disputes set in. Legal disputes occur in all businesses, and franchises are no exception. Franchise law is typically complex with different legal issues spanning across many areas of law. When franchise disputes start arising, it’s wise to seek legal counsel.
A competent lawyer for franchise disputes will provide appropriate legal counsel, besides protecting the interests of their clients. A franchise lawyer can also help clients achieve business objectives while mitigating the likelihood of costly disputes. In the U.S franchises are governed by franchise laws.
What is Franchise Law?
Franchise law is the byproduct of federal and state laws that are used to govern and regulate franchise agreements. The laws address several aspects of the franchise agreement, including the offer, acceptance, legal relationships, and the terms of sale. At the federal level, franchisors are expected to furnish prospective investors with franchise disclosure documents (FDD). At the state level, extra disclosures may be required to supplement the federal-level disclosures
What is a Franchise Agreement?
Franchise agreements are binding and legal documents that regulate a franchise. The contents of a franchise agreement include:
- Expectations the two parties.
- Obligations of the transacting parties.
- Authorities given to the franchisee.
- Operating restrictions.
- Franchise fee payable by the new investor.
- Trademark details.
How Long do Franchises Last?
In most cases, franchise agreements stay active for a duration of 10 to 25 years. However, most average 10 years. Most franchise agreements include a renewal clause. Perpetual franchise agreements are considered binding and legal in some states. Although the agreement may renew automatically, indefinitely, or after the end of an agreed period, the franchisee cannot terminate the agreement. He/she should wait for the expiry of the agreed period or transfer ownership to interested third parties. Otherwise, they are liable for liquidated damages. Common franchise disputes include:
- Territory disputes
- Franchise agreement disputes
- Franchise termination disputes
- Financial disclosure or document compliance issues
Litigation for Franchise Disputes
In some scenarios, the franchise agreement provides a way to resolve disputes in the event they occur. It may be through mediation or arbitration. If dispute resolution mechanisms haven’t been highlighted, the franchisee and franchisor may initiate the mediation process on their own. Unfortunately, mediation doesn’t always resolve some complex disputes. If self-mediation is unsuccessful the two parties in the unsuccessful mediation can seek legal help from a lawyer for franchise disputes.
Franchise Contract and Agreement Disputes
Legal disputes in a franchise can cause conflicting interests, hindering business operations and growth. Securing legal representation before a dispute arises is highly recommended. This facilitates prompt action and minimizes disruption in the event of a dispute.
Unfortunately, it’s hard to foretell likely future disputes, which can further complicate the situation for the party without any legal representation mechanisms in place. Common franchise agreement disputes include:
- Agreement, termination, or disclosure.
- Breach of trust.
- Non-compliance.
- Fraud and false disclosures.
- Breach of a contract or licensing agreement.
- Enforcement challenges.
- Franchise termination disputes
In most termination disputes, the franchisor takes legal action to protect their interests. Regardless of the scenario, it’s wise to be prepared beforehand.
What to Consider When Hiring a Lawyer for Franchise Disputes
Many states have well-established franchise laws, although most franchise agreements come with pre-determined ways of tackling arising disputes. Where the state franchise law is applicable, the pre-determined provision in the franchise agreement becomes void. In some cases, the state franchise law can give the franchisee authority to assert claims that otherwise wouldn’t be allowed under common law.
Finding an experienced lawyer for franchise disputes is crucial to secure the business interests of the franchisor or franchisee.
Qualifications of Domestic Franchise Attorneys
Strictly speaking, any lawyer can be a domestic franchise attorney. However, due diligence should be done when hiring a franchise lawyer. A competent franchise lawyer should have the following minimum qualifications:
- Widely experienced.
- Good reputation.
- Be a qualified lawyer.
- Should be committed and dedicated to franchising.
Franchise Agreements Best Practices
Seek Legal Counsel
Most people do not involve a lawyer for franchise disputes when establishing a franchise. Without any legal counsel, either party can easily be short-changed or taken advantage of.
“May” and “Shall” are not the same
Be clear on the franchisors’ obligations from the word go. May means that they’re not obligated to do something but shall indicate obligation on their part and they’re expected to fulfill the same.
Being real
You should enter the franchise knowing that another person’s success is not yours and that you need to toil for the same success.
A franchise business model should provide a mutual relationship for the franchisor and franchisee, that’s why you may need the services of a franchise lawyer who will safeguard the interests of business partners.
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