Get Legal Assistance from Franchise Lawyers Who Defend the Franchisee
The Goldstein Law Firm is a boutique national law firm that represents exclusively franchisees and dealers, not franchisors, suppliers or manufacturers. There are only a handful of franchisee lawyer specialists remaining in the country, as most have begun representing both franchisors and franchisees.
Franchise law is a multifaceted area of law that requires specialization. Any franchise attorney can tell you about a variety of cases where franchise agreements have gone south.
Here at Goldstein, our attorneys have as much as 30 years of experience handling all aspects of franchise litigation throughout the county.
We also specialize in franchise agreement assistance, bringing you the latest developments in franchise and distribution law. With the publishing of our Franchise Trends newsletter, we can help franchisees stay updated on developments concerning different legal aspects of franchising.
Dealing with the complexities and challenges of franchise law requires focus and specialization, which is why we represent dealers and franchisees exclusively. Unlike other firms, we at Goldstein are on the side of the franchisee. We can help you decipher the fine print of your franchise agreement and single out details your franchisor may not want you to know.
Without a knowledgeable and competent franchise consultant, you may be vulnerable to the pitfalls of franchise law. Simply walking away is not a viable solution if you’re looking to protect your assets and yourself from financially damaging consequences. For those who have already signed an agreement and are struggling with franchisor difficulties, our franchise law firm also provides legal assistance through its franchise attorneys.
Frequently Asked Questions on Franchise Law:
However, there are few if any recent case findings in which a franchisor has violated the terms of a franchise agreement. And if the franchise agreement hasn’t been violated, the courts almost never support a free-standing claim of negligence against the franchisor.
In other words, courts have held that franchisors do not owe a duty of competence to their franchisees.
It’s interesting to note, however, that many franchise law firms stay busy addressing the flip side of this issue–whether the franchisee has acted negligently in operating his or her franchise
However, the provisions outlining those duties owed by franchisors are few and normally too ambiguous to enforce. Most franchise agreements include contractual language stating to the effect that "the franchisor doesn't guarantee the success of the franchisee."
In practice, this means that franchisors really don’t have a compelling duty to provide support to their franchisees.
Also, most franchise agreements require franchisees to state in their agreements that their business venture involves risks, one of the most prominent being the business knowledge of the franchisee.
This results in a double standard: The franchisor has only a few ephemeral obligations to the franchisor. But in contrast, the “whereas” provisions in the introduction of most franchise agreements indicate that the franchisor is the undisputed guru in operating franchises in that particular industry.
Keep in mind, these areas are so broadly defined that even the best trial attorney would have difficulty in trying to identify – never mind proving – the contours of such duties unless he or she had extensive experience within a franchise law firm.
Are franchisors permitted to modify their requirements or system standards during the term of the franchise?
Franchisors gain this fluidity by lacing their franchise agreements with language that "the franchisor is permitted to modify or change the Operations Manual." They can then "incorporate by reference” the Operations Manual into the franchise agreement.
The franchisor's unbridled discretion is further bolstered by language in the franchise agreement that "the franchisor may modify the Operations Manual in its 'sole discretion.'"
Everybody knows that people and businesses are subject to liability for “negligence.” Can't franchisors be held liable for negligence to their franchisees as well?
When the franchisee is only claiming economic loss – which is almost always the case -the franchisee must seek its damages through a breach of contract action.
The franchisee would have to prove that the franchisor violated the franchise agreement. This is very difficult to prove, as the franchisor’s duties are usually few, ephemeral, and deliberately vague.
It’s possible a franchisor could be found liable if he or she failed to work in good faith and with fair dealing, but this is a long shot.
Note, however, that courts have found franchisors liable for negligence in certain
cases where personal injuries were involved.
Read about more frequently asked questions on Franchise Law.
Why The Goldstein Law Firm Is Your Winning Law Firm Choice:
- Over Three Decades of Distribution/Franchise Law Experience
- Specialization In All Franchise-Related Legal Subject Matters
- Experience and Expertise in All Court Systems in the USA
- Widest Geographical Scope of Clients
- Exclusive Client Base – Only Franchisees & Dealers
- Personal Attorney Attention to Your Case
- Large-Firm Training & Experience
- Government Experience
- Active Writing & Research in the Franchise Field – Familiarity with Laws in All States
The franchise industry is booming. According to the International Franchise Association’s Franchise Business Economic Outlook for 2016, the number of franchised outlets, number of franchise employees, and gross domestic product (GDP) from franchised businesses all increased more than expected during 2015. Last year’s growth figures exceeded those from 2014, and the International Franchise Association expects to see similar growth in 2016.
For franchisees, the franchise model has its benefits. However, these benefits come with strict limitations as well. So, if you want to own your own business, is a franchise worth it?
Benefits of Buying a Franchise
Talk to any franchise consultant, and you will hear pretty much the same story about why franchising is a smart alternative to building an independent business from the ground up. Generally speaking, the hallmark benefits of buying a franchise include:
- Brand Recognition – Customers who want to know what to expect rely heavily on brand recognition (consciously or not) in deciding where to spend their money. Unlike starting a business from scratch, with a franchise you have instant credibility.
- Proven System – Franchisors offer proven systems, covering everything from site selection and trade dress to point-of-sale technology and back-end financial management. When you buy a franchise, you are buying the right to benefit from the franchisor’s background and expertise.
- Franchisor Support – Franchisors have an interest in making sure their franchisees are successful. Successful outlets mean more royalties and better selling points for new prospective franchisees.
Of course, some franchise systems offer more benefits than others. For example, a well-known franchise like Subway or The UPS Store is going to offer significantly more brand recognition than a fledgling system seeking to tap into a new market. On the other hand, these larger, more-established systems often have higher royalty rates and more heavy-handed operational controls. They also may be less open to negotiating the terms of their franchise agreements. As a result, if you are considering a franchise, it is critical to conduct thorough due diligence so that you can make an informed decision about your five or ten-year (or possibly even longer) commitment.
Red Flags in Franchise Opportunity Due Diligence
Conducting your due diligence on a franchise opportunity involves a number of different steps, from reviewing the FDD and franchise agreement to speaking with current and former franchisees. To measure the benefits (and weigh them against the drawbacks) of any one particular franchise, it is important to carefully assess factors such as:
- Franchise expirations and terminations
- Franchisor financial condition
- Pending trademark litigation
- Renewal and transfer conditions
- Royalty, marketing fund and other fees
- System size, growth and location
- Territory rights
This is just a small sampling of the myriad factors that should influence your franchise buying decision. To learn more, contact the Goldstein Law Firm for a free consultation today.
Inquire About Our Franchise Review and Negotiation Services
Franchise attorney Jeffrey M. Goldstein represents prospective franchisees nationwide in evaluating franchise opportunities and negotiating with their franchisors. If you are considering a franchise, contact us online or call (202) 293-3947 to learn more about our fixed-fee franchise review services today.
We’ll start with the bad news first: Your franchise agreement probably does not give you the right to terminate. Franchisors like control, and this includes deciding why – and when – franchisees leave the system. As a result, most contemporary franchise agreements include plenty of termination rights for the franchisor and none for the franchisee.
Does this mean you are out of options already? Not necessarily.
Four Ways to (Potentially) Get Out of a Franchise Relationship
While your options for getting out of your franchise agreement will be highly dependent upon your unique individual circumstances, the following are four potential options for franchisees seeking to extricate themselves from franchise relationships:
1. Assert Your Right to Terminate.
Although most standard franchise agreements do not provide franchisee termination rights, some do; and, if you hired an attorney to negotiate your franchise agreement, you may have termination rights that are not available to other franchisees in the system. As a result, if you are seeking to get out of your franchise, your first step should be hiring a franchise attorney to tell you what your agreement says about termination.
However, even if you have termination rights, they are most likely default-based (or “for cause”), so you will need to be able to point to a significant breach of your franchisor’s obligations in order to exercise your right to terminate.
2. Assert a State Franchise Law Violation.
Various states around the country have franchise laws in place that restrict certain franchisor activities and provide franchisees with varying remedies for their franchisors’ franchise law violations. For example, if your franchisor violated a state franchise law by selling you a franchise without timely providing you with an accurate Franchise Disclosure Document (FDD), you may be entitled to seek rescission of your franchise agreement.
3. Find a Buyer.
A third option is to find a buyer for your franchise. Of course, this is not necessarily as easy as it sounds (especially if your outlet is struggling), and your franchise agreement probably includes a transfer fee, franchisor approval right and other conditions on the sale of your business. But, under the right circumstances, finding a buyer can be a good, relatively quick solution for exiting the franchise model.
4. Let Your Franchise Agreement Expire.
Finally, you can run out the clock until your franchise agreement expires. If the end of the current term is in sight and you can survive without going into default under your agreement, while not ideal, this may ultimately be the best option you have available.
Learn More About Your Options From a Franchise Law Firm
If you are interested in exploring your options for terminating your franchise, contact the Goldstein Law Firm for a free, confidential consultation. Jeffrey M. Goldstein is a highly-respected franchise attorney who has over 30 years of experience representing franchisees nationwide. To find out what options you may have available, request a consultation online or call (202) 293-3947 today.
As a franchisee, there are few things worse than coming to the realization that you may need to sue your franchisor. Unfortunately, for many franchisees, this is reality, and taking legal action is the only way to protect their investment and their legal rights.
If you are at the point of considering franchise litigation, this article provides an overview of potential causes of action that franchisees can assert against their franchisors. To find out what claims you may have available, we encourage you to contact us immediately for a free consultation.
Common Claims in Franchise Litigation
Franchise Disclosure Violations
Under federal law and the laws of various states around the country, franchisors owe a duty to provide timely and accurate disclosures to potential franchisees. These disclosures must be made in the form of a Franchise Disclosure Document (FDD), which, depending on the state where you live, may need to be registered before the franchisor can begin selling franchises. Some common forms of franchise disclosure violations include:
- Your franchisor failed to provide you with an up-to-date FDD
- Your franchisor sold you a franchise too soon after providing you with its FDD
- Your franchisor included misrepresentations or exaggerations in its FDD
- Your franchisor underestimated the initial investment to open your franchise in Item 7 of the FDD
- Your franchisor provided an inaccurate or unsubstantiated “financial performance representation”
Breaches of the Franchise Agreement
While most franchise agreements are fairly limited in terms of establishing affirmative obligations for the franchisor, there are still typically several ways in which franchisors can breach the terms of their agreements. Some of these include:
- Your franchisor or another franchise encroached on your territory
- Your franchisor stopped providing products, services or support
- Your franchisor used marketing fund fees for other purposes
- Your franchisor wrongfully refused to renew your franchise
- Your franchisor wrongfully terminated your franchise agreement
Unfair Franchise Practices
In addition to committing disclosure violations and breaching the terms of the franchise agreement, franchisors can also be held liable for a variety of other unfair franchise practices. These practices vary widely and implicate a wide variety of state and federal laws, so it is critical that you discuss your situation with a highly-experienced franchise litigation attorney:
- Accepting undisclosed rebates from vendors
- Acting in bad faith (even if not technically in breach of the franchise agreement)
- Antitrust violations
- Discriminating against individual franchisees
- Violating franchise, industry-specific and other state and federal laws
Of course, this is just a small sampling of the virtually innumerable claims aggrieved franchisees may have against their franchisors. If you believe that your franchisor has violated the law, violated your franchise agreement or otherwise acted improperly, it is important that you act quickly to protect your rights. To find out more, schedule a free consultation with franchise attorney Jeffrey M. Goldstein today.
Speak with National Franchise Lawyer Jeffrey M. Goldstein About Your Claim
Jeffrey M. Goldstein is a national franchise lawyer with more than 30 years of experience representing franchisees in litigation against their franchisors. If you have a claim, Mr. Goldstein can help you enforce your rights. For a free, confidential consultation, tell us about your situation online or call (202) 293-3947 now.
If your aspirations as a franchisee extend beyond opening a single location, you potentially have a few different options available. Franchisors often favor selling new territories to well-qualified and trusted franchisees, and as a result over the years the industry has developed a number of “standard” methods for providing expansion options to franchisees seeking multi-unit opportunities. These methods include:
- Area Development Agreements
- Rights of First Refusal
- Options for Additional Territories
Methods for Securing Multi-Unit Franchise Development Rights
1. Area Development Agreements
When you sign an Area Development Agreement, you receive the right to open multiple outlets. However, you also have the obligation to open these outlets – most likely on a very tight schedule or within a very limited period of time. As a result, when considering an Area Development Agreement, it is critical to thoroughly assess both the market conditions and your financial capacity to ensure that you are not taking on an unviable business or biting off more than you can chew.
Importantly, when you enter into an Area Development Agreement, you will still be required to sign a Franchise Agreement for each individual outlet. As an area developer, carefully negotiating both the Area Development Agreement and the individual Franchise Agreements is critical to protecting your multi-unit development and individual franchise rights.
Remember, franchisors want as many protections as possible, and it is very possible that your franchisor’s standard agreements allow for termination of all of your rights if you fail to meet your development schedule or if an individual franchise fails to perform.
2. Rights of First Refusal
The second common method of securing multi-unit franchise rights is what is known as a “right of first refusal.” With a right of first refusal, if a new candidate contacts your franchisor about a franchise opportunity (typically in a territory adjacent to yours), your franchisor must offer you the same opportunity before awarding the opportunity to the prospective franchisee.
Of course, rights of first refusal usually aren’t free, and they always come with strings attached. Then, there is the practical issue of not knowing when you will be forced to make the decision about whether to invest in a second franchise. As a result, while rights of first refusal avoid many of the strictures associated with Area Development Agreements, they require their own careful consideration as well.
3. Options for Additional Territories
The third common method is known as an “option.” With an option, you receive the exclusive right to open an additional outlet in a specific territory for a specific period of time.
Like rights of first refusal, options come at a price. In addition, since options are (or should be) exclusive, they tend to be less favored by franchisors. As a result, negotiating an option can require significant leverage, especially in more-mature franchise systems.
IMPORTANT: Secure Your Multi-Unit Rights Up Front
Regardless of the method you choose, the key to securing multi-unit rights is to negotiate for them up front. Once you sign a franchise agreement, your franchisor will have significantly less incentive to offer you contractual rights to open additional outlets. An experienced franchise lawyer will be able to advise you on the options you have available, and should be able to effectively represent you in negotiations to secure the multi-unit development rights you desire.
Are You Considering a Multi-Unit Franchise Opportunity? Schedule a Free Consultation Today
If you are considering a multi-unit franchise opportunity, contact the Goldstein Law Firm for a free, confidential consultation. Attorney Jeffrey M. Goldstein has over 30 years of experience representing franchisees in negotiations and complex franchise litigation, and can help you make informed decisions about your franchise venture and negotiate effectively with your franchisor. To speak with Mr. Goldstein directly, please request an appointment online or call (202) 293-3947 today.
When evaluating a new franchise opportunity, there are plenty of considerations to keep in mind. What is the best location? Will you need to hire employees? If so, how can you find people you can trust? How and when will you roll out your initial advertising campaign?
Amidst the excitement and practicalities involved in opening a franchised business, it is easy to want to jump ahead. Unfortunately, for some franchisees, this means overlooking a key step: hiring an experienced franchise attorney to review and help you understand the franchise agreement.
The Importance of Negotiating with Your Franchisor
When prospective franchisees decide not to hire an attorney, there are usually a couple of reasons why. First, they assume that the franchise agreement is non-negotiable. Or, even if it is negotiable, they do not want to “get off on the wrong foot” by getting into legal negotiations with their new franchisor. Second, they assume that all franchise agreements are the same. They are set on getting into the world of franchising, and they take for granted that submitting to the terms of a franchisor-friendly contract is just part of the process.
However, the truth of the matter is that franchisees can (and should) negotiate their franchise agreements, and franchise agreement terms can vary widely from one system to the next. Quality franchisors should be open to – and even expect – reasonable negotiations, and in many cases negotiations will simply focus on clarifying ambiguities and bringing the terms of the agreement up to industry standard. As a result, if you do not hire an attorney to advise you and negotiate on your behalf, you could very well end up in a worse position than other franchisees in the system.
Risks of Blindly Entering Into a Franchise Agreement
To illustrate, here are some common pitfalls that can result from not hiring a franchise attorney to conduct a comprehensive franchise agreement review and negotiate with your franchisor:
- Limited “Right” to Renew – Franchisors like to retain maximum flexibility, and this often means limiting franchisees’ rights to renew. Even if you have a renewal right, it is likely subject to so many one-sided conditions that it is hardly a “right” at all.
- No Protection from Costly Upgrades – Your franchise agreement likely requires you to comply with the franchisor’s Operations Manual and update your franchised outlet upon request. This will be at your expense, with no cap on the costs your franchisor can force you to incur.
- Ambiguous (or Missing) Legal Protections – While franchise agreements contain plenty of clear legal protections for franchisors, the protections franchisors voluntarily offer their franchisees are few and far between. You want to make sure your agreement contains appropriate protections with no room for interpretation.
- Restrictions on Post–Franchise Business Ownership – When your franchise agreement ends, what will you do? Your agreement most likely contains competitive and other restrictions that will limit the options you have available.
Of course, this is just a small sampling. For more information on the risks of signing a franchise agreement without legal representation, you can read: Top Ten Worst Provisions in a Franchise Agreement.
Jeffrey M. Goldstein | Franchise Lawyer Representing Franchisees Nationwide
Franchise lawyer Jeffrey M. Goldstein has over 30 years of experience advising prospective franchisees and negotiating with franchisors. If you are considering a new franchise opportunity, call the Goldstein Law Firm at (202) 293-3947 or contact us online to learn more about our fixed-fee franchise review services today.