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
Whether you are seeking to sell your franchised outlet or buy an existing franchise as opposed to an independent business, it is important to understand that franchisors often exercise strict control over the transfer process. To a certain extent, this is understandable: Franchisors have a legitimate interest in controlling who operates under their brand and system, and as a result evaluating a transferee should involve much the same process as evaluating a completely new franchise prospect.
However, for any of a variety of reasons, some franchisors take their control over franchise transfers too far. As a result, if you are considering buying or selling an existing franchised outlet, here are some key transfer provisions to keep in mind:
Common Transfer Restrictions in Franchise Agreements
1. Franchisor Consent to Transfer
First, you can be almost certain that the current franchise agreement contains a provision that requires the franchisor’s consent in order to transfer the business. If the current franchisee hired an attorney before purchasing the franchise, he or she may have negotiated a “reasonableness” limitation (i.e. “The franchisor’s consent to transfer cannot be unreasonably withheld”) into the agreement. In addition, state law may require the franchisor to exercise its contractual rights in good faith. However, these are both subjective standards, and obtaining franchisor consent can often be a significant hurdle in the franchise transfer process.
2. Transferee Approval
Along the lines of a consent requirement, many franchise agreements also state that the transferee is subject to franchisor approval. Ideally, this approval right would be limited (i.e. the franchisor must apply the same standards it applies to new prospective franchisees), but that is not always – or even often – the case. You will want to make sure you know what is required for approval, and you will want to know as soon as possible.
3. Cure Outstanding Defaults
Third, franchise agreement transfer provisions will often include a clause requiring the current franchisee to cure any outstanding defaults (i.e. nonpayment of royalties or advertising fund fees) before the franchisor will consent to a transfer. This can present particular challenges when a current franchisee is seeking to sell because the business is struggling. It will be critical to gain a clear understanding of what the franchisor expects in terms of a “cure,” and the transferor and transferee may need to factor the cost to cure the default into the terms of their deal.
4. Sign the Franchisor’s Then-Current Franchise Agreement
Finally, there is a good chance that the existing franchise agreement includes a clause requiring the transferee to sign the franchisor’s “then-current” franchise agreement in connection with the transfer. Depending on how long the current franchisee has been in the system, the franchisor’s new form agreement may include terms (including financial terms and dispute resolution rights) that are drastically different from those in the existing contract.
Are You Considering a Franchise Transfer or Facing an Issue with Transfer Restrictions? Contact the Goldstein Law Firm Today
If you would like to speak with an attorney about your franchise transfer, contact the Goldstein Law Firm. Attorney Jeffrey M. Goldstein has over 30 years of franchise law experience, and he exclusively represents franchisees and dealers. For a free, confidential consultation, call (202) 293-3947 or submit an inquiry online today.
Whether you are considering buying a franchise or you are facing a legal dispute with your franchisor, it is important to make an informed choice about your legal representation. While you certainly want an attorney who devotes his or her practice to franchise law and franchise-related issues, this shouldn’t be your only consideration. For a variety of reasons, it is also important that you hire an attorney who exclusively represents franchisees.
Three Reasons to Hire a Lawyer Who Exclusively Represents Franchisees
Here are three reasons why current and prospective franchisees should strongly consider choosing a lawyer whose practice does not include representing franchisors:
1. Focused on the Issues from the Franchisee’s Perspective.
First, when an attorney splits his or her time between representing two different client bases, he or she is necessarily going to split time between protecting those client bases’ respective interests. This issue is magnified when each client base’s interests are diametrically opposed to the other’s. For example, let’s take the increasingly-complex issue of franchise renewal.
If your lawyer only represents franchisees, he or she will consistently be approaching franchise agreement negotiations and renewal scenarios from the perspective of, “How can I make sure my client has the greatest amount of flexibility when it comes to choosing whether or not to renew?” On the other hand, an attorney who also represents franchisors will have to spend time focusing on ways to make their franchisor clients’ agreements more restrictive while maximizing franchisor control.
2. No Conflicts of Interest.
Beyond this issue, when an attorney represents both franchisees and franchisors in litigation, there is a very real possibility that the attorney could end up making new law that is disadvantageous to his or her franchisee clients.
For example, imagine a dispute over a non-competition clause in which the franchisor’s attorney successfully argues that the courts should be more liberal in their enforcement. Imagine that this is the same attorney you have chosen to represent you as a franchisee. Now, all of a sudden, your lawyer has just made it more difficult for you to start an independent business once your franchise agreement expires.
3. Representing Franchisees Isn’t a Side Business.
Finally, at many franchise law firms that represent both sides, representing franchisees is essentially a side business. Franchisors are typically much larger clients, and as a result earning their business often takes priority over fighting to protect the interests of franchisees. Attorneys at these firms may occasionally perform franchise reviews or represent franchisees in franchise litigation, but you will often find that the bulk of their practices are devoted to franchisor representation.
Contact Franchise Litigation Attorney Jeffrey M. Goldstein | 30 Years’ Experience Representing Franchisees Nationwide
Attorney Jeffrey M. Goldstein have over 30 years’ experience practicing franchise law, and he exclusively represent franchisees and dealers. For more information on the benefits of choosing franchisee-only legal representation, call the Goldstein Law Firm at (202) 293-3947 or contact us online today.
As a franchisee, you no doubt appreciate the value that a strong brand can bring to the table. In fact, brand recognition is one of the top reasons why many people choose to buy a franchise instead of starting an independent business.
With approximately 27.5 million viewers having tuned in daily to watch the 2016 Rio Olympics on U.S. broadcast television and online streaming, you may be thinking about cashing in on the Olympics’ brand value in 2020. But, the question is, can you?
The Olympic Trademarks
Like other famous brands – including NFL, Super Bowl, NCAA, Final Four – “Olympic” is a registered trademark. The United States Olympic Committee (USOC) owns the registration with the United States Patent and Trademark Office (USPTO), and this means that using “Olympic” (or any confusingly-similar trademark) for commercial purposes requires a license from the USOC. Like other major sports organizations and other famous brand owners, the USOC makes money (lots of money) from licensing its trademark, and as a result it has been known to vigorously pursue businesses that attempt to benefit from associating themselves with the Olympics without acquiring a license.
What about the Olympic rings? As you might have guessed, those are protected, too. A trademark can be a word or symbol (or a combination of both), and using the Olympic rings in your business without authorization could also very well lead to the USOC sending a cease-and-desist letter.
In fact, not only are the Olympic trademarks protected by federal registrations, but there is actually a special statute that gives the USOC “the exclusive right to use” and license these trademarks as well.
What if My Franchisor Says It’s Ok?
So, as a franchisee, you generally cannot decide to launch an “Olympics”-themed promotion. But, what if your franchisor says it’s ok? What if your franchisor even uses the system’s advertising fund to develop and distribute “Olympics”-themed materials?
In order to have franchisees utilize an “Olympics”-themed promotion, a franchisor must have a license from the USOC that includes the right to sublicense to its franchisees. Believe it or not, franchisors can make mistakes just like anyone else, and this includes approving advertising materials that should not be approved. As a result, it is worthwhile to check if your franchisor has the necessary license. “My franchisor said it was ok,” isn’t going to hold up as an excuse for violating the USOC’s exclusive rights.
What Other Names Can’t I Use?
Generally speaking, in order to promote any third-party brand, your franchise is going to need a license. Think about it this way: When you pay your monthly royalties, part of what you are paying for is the right to use your franchisor’s brand. Not only doesn’t your franchisor want non-franchisees to use its brand for free, but you don’t want them to use it either. If other people can use the brand for free, then what are you paying for? The same concept applies to other brand-based businesses as well.
We already mentioned a few, but here are some of the other brands that restaurants, gyms and other businesses commonly misuse without a license:
- Final Four
- March Madness
- Super Bowl
- World Cup
- World Series
The Goldstein Law Firm | Exclusively Serving Franchisees and Dealers Nationwide
If you would like more information about your rights as a franchisee, contact our franchise law firm for a confidential consultation. To speak with national franchise attorney Jeffrey M. Goldstein, please call (202) 293-3947 or submit a request online today.
When comparing different franchise opportunities, there are several factors that come into play. Brand recognition, royalty rates, training, the initial investment – these are all issues that, for most prospective franchisees, are top of mind.
But, there is another issue that can be just as important as these (if not more), and that also serves to differentiate certain franchisors from others. This is the issue of mandatory arbitration. While you may not be concerned about getting into a dispute with your franchisor right now, what your franchise agreement says about arbitration can be critical to understanding – and protecting – your rights should a dispute arise down the line.
What is Mandatory Arbitration?
Arbitration is a voluntary form of alternative dispute resolution (ADR) that is intended to provide consenting parties with an efficient and cost-effective way to avoid the burdens of full-blown litigation. In many commercial situations, it will be in both parties’ best interests to acknowledge their differences and work toward a resolution without spending unnecessary time (and money) going to court.
But, if arbitration is “voluntary” and designed to save money, why are we talking about “mandatory” arbitration; and, why have we said that arbitration is not necessarily fair for franchisees?
If your franchise agreement has an arbitration clause, then you are subject to mandatory arbitration. Essentially, when you signed the agreement, you “voluntarily” agreed to submit all relevant disputes to arbitration regardless of whether it is in your best interests to do so when the time actually comes. Franchisors tend to like mandatory arbitration clauses for a number of reasons – all having to do with protecting them against their franchisees.
The Pitfalls of Mandatory Arbitration for Franchisees
For franchisees, mandatory arbitration clauses can present a number of potential concerns. While the specifics of mandatory arbitration clauses vary from one franchise agreement to the next, most tend to have the following characteristics:
- They designate a forum that is convenient for the franchisor. Unless you happen to live near your franchisor, this means that you will need to travel if you end up in a dispute involving your franchise agreement.
- They exempt situations where the franchisor needs to enforce its rights. While technically neutral, as a practical matter, provisions that exempt payment disputes (i.e. non-payment of royalties) and intellectual property-related disputes (i.e. enforcement of a franchisee’s confidentiality obligations) from the mandatory arbitration requirement favor the franchisor.
- They limit the time window for asserting claims. Franchise agreements often have very short “limitations” periods. If you do not file your arbitration claim in time, you can lose your rights.
These are just a few of the issues. Equally important, franchisors often consider their arbitration clauses to be “non-negotiable.” As a result, if the franchise agreement for your desired franchise includes a mandatory arbitration clause, you may have little choice but to give your franchisor an unfair advantage.
Speak with Franchise Attorney Jeffrey M. Goldstein of the Goldstein Law Firm
If you are considering a franchise opportunity, or if you are a franchisee facing a dispute with your franchisor, we invite you to contact us for a consultation. The Goldstein Law Firm is a national franchise law firm that exclusively represents franchisees and dealers. To speak with attorney Jeffrey M. Goldstein about your legal needs, please call (202) 293-3947 or contact us online today.
This is Part 3 of our three-part series, Understanding Your Franchisor’s FDD. Here, we cover some of the highlights of Items 15 through 23. For our discussion of Items 1 through 14, you can read:
- Understanding Your Franchisor’s FDD – Part 1 (Items 1 through 7)
- Understanding Your Franchisor’s FDD – Part 2 (Items 8 through 14)
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
What You’ll Find
Any restrictions the franchisor imposes regarding who can take responsibility for the day-to-day operation of the franchised business.
Why You Care
While some franchisors do not require their franchisees to have direct involvement in their outlets’ day-to-day operations, others do. If your franchisor requires direct, “on-premises” supervision, this is certainly something you will want to know (especially if you are looking for a multi-unit opportunity).
Item 16: Restrictions on What the Franchisee May Sell
What You’ll Find
Any requirements to sell only approved goods or services, as well as any requirements to sell all goods or services authorized for sale at franchised outlets.
Why You Care
If your franchisor limits your inventory or service offerings, this is something that you will need to take into consideration when evaluating the financial potential of your franchise. Likewise, if your franchisor requires you to carry all approved products, is this going to leave you paying for inventory that just ends up going to waste?
Item 17: Renewal, Termination, Transfer, and Dispute Resolution
What You’ll Find
A table that identifies where you can find key terms in your franchise agreement (such as termination and renewal rights), as well as summaries of each of these key terms.
Why You Care
If you are struggling to find a particular clause while wading through your franchise agreement, you may find the Item 17 table helpful. While you can read the franchisor’s summaries of the agreement’s terms for informational purposes, you should not rely on the summaries as a substitute for obtaining independent legal advice.
Item 18: Public Figures
What You’ll Find
Information on any sponsorship or endorsement deals the franchisor has signed with public figures (such as actors, musicians or athletes).
Why You Care
Item 18 disclosures are relatively rare. But, if your franchisor has entered into an endorsement or sponsorship agreement with a public figure, analyzing Item 18 and asking follow-up questions can help you get a better idea of the value (if any) that the relationship brings to the franchise system.
Item 19: Financial Performance Representations
What You’ll Find
Either (i) a “negative disclosure,” which states that the franchisor does not provide financial performance representations; or, (ii) a substantiated disclosure of the actual or potential financial performance of some or all of the system’s company-owned and/or franchised outlets.
Why You Care
If your franchisor provides a financial performance representation (formerly known as an “earnings claim”), you will probably want to take it with a grain of salt. Most financial performance representations come with a host of caveats and disclaimers, and they rarely provide reliable insight into what any one franchisee can expect to earn. That said, it is certainly worthwhile to review any affirmative disclosures provided in Item 19 and attempt to validate them with current and former franchisees.
Item 20: Outlets and Franchisee Information
What You’ll Find
Tables (with accompanying footnotes) that provide three years’ worth of data regarding: (i) franchise openings and closings, (ii) transfers, (iii) terminations and non-renewals, and (iv) company-owned outlet openings and closings. There is also a fifth table that discloses the franchisor’s projections for new openings over the coming year.
Why You Care
Prospective franchisees can glean a lot of useful information from Item 20. Pay particular attention to any major fluctuations as well as the numbers for “Ceased Operations-Other Reasons” – which often means that a franchisee went out of business due to lack of profitability.
Item 21: Financial Statements
What You’ll Find
Audited financial statements for the franchisor’s last three fiscal years (except for new franchisors, which are allowed to follow a “phase-in” approach).
Why You Care
When you buy a franchise, you want to know that the franchisor is financially secure. An experienced accountant will be able to help you make sense of the franchisor’s audited (or unaudited) financials.
Item 22: Contracts
What You’ll Find
A list of the contracts you will be required to sign if you purchase a franchise.
Why You Care
You will want to make sure you have copies of all relevant agreements so that you can provide them to your attorney for review.
Item 23: Receipts
What You’ll Find
Two copies of a one-page “receipt” that you will be required to sign when you receive the Franchise Disclosure Document (FDD).
Why You Care
Federal regulations require all franchisors to obtain a signed FDD receipt from each prospective franchisee. As noted on the receipt page, you must receive the FDD at least 14 calendar days before signing the franchise agreement or making any payment to the franchisor in order for the franchisor to remain in compliance (note that some states have different minimum disclosure periods).
Inquire about a Fixed-Fee Franchise Review from the Goldstein Law Firm
If you are considering a franchise opportunity and need assistance reviewing the franchisor’s FDD or franchise agreement, we encourage you to contact us to learn about our fixed-fee franchise reviews. To speak with national franchise lawyer Jeffrey M. Goldstein, call the Goldstein Law Firm at (202) 293-3947 or send us a message online today.