Monthly Archives: August 2018

What Should Prospective Franchisees Take Away From Litigation Disclosures in Item 3?

Aug 31, 2018 - Blog by |

As a prospective franchisee, reviewing the terms of a franchisor’s Franchise Disclosure Document (FDD) is a critical early step in the due diligence process. When reviewing the FDD, it is important to review all of the 23 “Items” – not just the ones dealing with fees and the estimated initial investment. Among the more “legal” sections of the FDD that prospective franchisees frequently overlook is Item 3: Litigation. But, whether the franchisor provides a “negative disclosure” or details multiple ongoing pending lawsuits, Item 3 can often provide valuable insights into the risks of choosing a particular franchise opportunity. Potential Takeaways from the Item 3 of the FDD 1. An Item 3 “Negative Disclosure” If a franchisor does not have any litigation history that is subject to disclosure under the Federal Trade Commission’s (FTC) Franchise Rule, it must simply state in Item 3, “No litigation is required to be disclosed in this disclosure document.” While this is generally what you want to see as a prospective franchisee, it is important to note that not all types of lawsuits are subject to disclosure in Item 3 under the FTC Franchise Rule. For example, lawsuits that do not need to be disclosed in Item 3 include: Criminal actions that do not involve allegations of fraud; violations of franchise, antitrust or securities laws, or other “comparable allegations;” Civil lawsuits that are considered “ordinary routine litigation incidental to the business;” and, Bankruptcy proceedings subject to disclosure in Item 4. 2. Litigation Against Franchisees Under the […]

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Can a Franchisor Sell Franchises on a “Take It or Leave It” Basis?

Aug 24, 2018 - Blog by |

“Take it or leave it.” While hearing a franchise salesperson utter these words is less common than it used to be, high-pressure tactics remain a central component of the sales process in many franchise systems. Although buying a franchise is a unique and high-risk investment, franchisors use traditional methods to sell franchises, and their salespeople get paid on a commission basis. This means that they have a financial incentive to close as many sales as possible, and the last thing they want is for their commission to get held up due to franchise agreement negotiations. As a result, franchise salespeople will often imply that there is no room for negotiation in the franchise agreement. They may say things like, “Our franchisor doesn’t agree to changes,” or “We already offer better terms than any of our competitors.” Regardless of whether or not these statements are true (which is another matter entirely), the simple fact of the matter is that all franchisees have the right to make informed decisions and protect their investments. In fact, most good franchisors will not only be willing to negotiate reasonable modifications, but they will even expect quality franchise candidates to request changes to their standard terms. The reason for this is simple: Franchisors know that their agreements are heavily one-sided. They know that franchisees who accept their standard terms are taking a huge risk, and they know that they need to be reasonable in order to attract top talent. Key Risks of Signing a Franchise Agreement […]

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7 Special Considerations for Purchasing a Fitness Franchise

Aug 17, 2018 - Blog by |

Fitness franchises came into vogue about a decade ago; and, since then, the range of fitness-oriented franchise concepts available for purchase has exploded. From full-service 24-hour fitness centers to children’s gyms and rock-climbing centers, if you are looking for a franchise opportunity in the fitness industry, there is a very good chance that there are options available. Like all franchises, buying a fitness franchise comes with certain inherent risks. This includes risks that apply to the owning a franchise generally as well as risks that are unique to operating a fitness center or gym. If you are thinking about buying a fitness franchise, here are seven considerations to keep in mind: 1. Initial Term and Renewal Rights Opening a fitness franchise typically involves a sizeable initial investment. Remodeling costs, fitness equipment, point-of-sale equipment and other initial costs can easily reach the hundreds of thousands or millions of dollars. In order to protect this investment, it is important to ensure not only that the initial term of your franchise is sufficient, but also that you have adequate protections at the time of renewal. 2. Grounds for Termination In this same vein, it is also critically important to understand your franchisor’s rights of termination. Franchisors typically reserve broad termination rights, including the right to terminate for non-payment of minimum royalties, so you will minimally want to ensure that you have adequate cash on hand to meet your financial obligations without relying on income from your franchised business during your initial months of […]

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What Does it Mean if My Franchise Agreement Requires “Mandatory Arbitration”?

Aug 10, 2018 - Blog by |

Many franchise agreements include provisions requiring franchisees to submit to binding arbitration in the event of a franchisor-franchisee dispute. While these “mandatory arbitration” provisions are supposedly designed to minimize both parties’ costs in the event that a dispute would otherwise lead to litigation, the reality is that these provisions routinely serve franchisors’ interests to the detriment of their franchisees. What is Arbitration? Arbitration is a form of alternative dispute resolution (ADR) proceeding that falls somewhere in between mediation (where a neutral “mediator” helps disputing parties reach a consensus) and litigation (where a judge renders a binding decision in court). In arbitration, each party will typically conduct limited discovery, and then each party will present its case in the arbitration venue. The dispute may be heard by a single arbitrator or a panel of three (or more) arbitrators; and, at the conclusion of the proceeding, the arbitrator(s) will render a binding decision which, if necessary, can be enforced by obtaining a judgment in court. Where Does Arbitration Occur? Typically, franchise agreements will require arbitration proceedings to take place in the city where the franchisor’s headquarters are located. This usually means that franchisees are forced to incur travel costs in order to assert their legal rights (and this is one of the first ways that mandatory arbitration provisions tend to work in the franchisor’s favor). Franchisors can also designate specific arbitration service providers in their franchise agreements, and hearings will typically take place at these providers’ office locations. Two of the most-commonly-used […]

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Hiring Considerations for Franchisees

Aug 3, 2018 - Blog by |

As a franchisee, you own your own business. This means forming your own corporation or limited liability company (LLC), taking on your own loans, entering into your own contracts, and being responsible for your own success or failure. For many franchisees, it also means hiring your own employees. The employment relationship is fraught with legal issues, so much so that there is an entire segment of the law (called “labor and employment law”) devoted to issues involving employers and employees—just as “franchise law” governs the relationship between franchisors and franchisees. However, the nature of the franchise relationship also has unique implications for employment; and, as a franchisee, it is critical to have a clear understanding of your employment obligations and your employees’ legal rights. Are You Preparing to Take on Employees as a Franchisee? There are textbooks, statutes, regulations and decades of court precedent dedicated to defining the employer-employee relationship. So, there is far more to hiring employees than we can possibly discuss here. As a franchisee, if you are preparing to hire, here are some of the basic principles you need to know: 1. Your Employees are Your Employees While there has been much discussion about franchisors’ exposure to liability for claims filed by franchisees’ employees, one principle that was never in doubt is that franchisees’ employees are franchisees’ employees. When you hire employees, you make the hiring decisions, you are responsible for making payroll and you are obligated to respect your employees’ regulatory, statutory and Constitutional rights. 2. […]

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ACQ5 LAW AWARDS 2019

US (New York)
Franchise Lawyer
of the Year
ACQ5 GLOBAL AWARDS 2019, JEFF GOLDSTEIN, GOLDSTEIN LAW FIRM, PLLC

ACQ5 LAW AWARDS 2019

US (New York)
Franchise Law Firm
of the Year
ACQ5 GLOBAL AWARDS 2019, GOLDSTEIN LAW FIRM, PLLC

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Top Franchise Litigator for Franchisees and Dealers

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2017 Finance Monthly Award

ACQ5 LAW AWARDS 2018

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2018

ACQ5 LAW AWARDS 2019

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2019

Franchise Law Firm of the Year

Franchise Law Firm of the Year

Franchise Law Firm of the Year

Franchise Law Firm of the Year
Global Awards 2017

Global Law Experts

Franchise Law Firm
of the Year
in New York – 2019

Finance Monthly Law Awards - 2018

Finance Monthly Law Awards - 2018

Franchise Law Firm of the Year

Franchise Law Firm
of the Year
Global Awards 2018

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