Although indemnification clauses are ubiquitous in the franchise industry, indemnification is a legal concept that few franchisees, franchisors and even franchise attorneys truly understand. This is unfortunate, because it leads many franchisees to assume legal responsibility for liabilities that are far beyond their control, and it prevents many franchisors from negotiating reasonable concessions that would be no-brainers if they understood the terms of their own franchise agreements. What is Indemnification? So, what is indemnification? In its most basic form, indemnification is the oblation for one party to assume liability for a claim against another party. So, if Joe sues Jane and John has an obligation to indemnify Jane, if Joe wins, John is the one who is ultimately responsible. In a typical franchise agreement, the indemnification clause will look something like this: “Franchisee will fully indemnify and hold harmless Franchisor from and against any and all claims arising out of or relating to the Franchise, whether asserted during the term of the Franchise Agreement or after the Franchise Agreement expires.” This sounds reasonable enough, right? If a customer sues your franchisor for something that you did, doesn’t it make sense for you to be held liable? While a duty to indemnify may make sense in this particular scenario (although, even this may not necessarily be the case), there are plenty of other scenarios where the franchisor should be the one to indemnify. Most Franchise Agreement Indemnification Clauses are Overly Broad While you will be the face of your franchise and, […]

Read More

All franchise opportunities present certain legal issues. From your obligation to pay royalties to the franchisor’s right to terminate your franchise agreement, virtually all aspects of the franchise relationship have legal implications. In certain sectors, the nature of the business can give rise to legal concerns as well. Senior care is one of these sectors. What are Some Potential Legal Risks for Senior Care Franchise Owners? Whether you are considering an in-home care franchise, a medical staffing franchise, a franchise for a skilled nursing facility, or any other type of franchise focused on serving the elderly, it is important to have a clear understanding of the potential legal risks involved. Along with conducting your due diligence and negotiating your franchise agreement, this also means addressing the legal issues associated with: 1. Lease Negotiations If you will be leasing a senior care facility or administrative office space, it will be important to put as much effort into negotiating your lease as you put into negotiating your franchise agreement. Similar to franchise agreements, commercial lease agreements are often heavily one-sided; and, in addition to ensuring that you can use the space as you intend, you will also need to make sure that you have adequate protections so that you can remain in the space throughout the term of your franchise. 2. Hiring and Employment When hiring people who will be caring for seniors or who will have access to seniors’ places of residence, conducting adequate screening and background checks takes on heightened […]

Read More

Each year, we publish numerous articles designed to help prospective and current franchisees gain insight into the franchise buying and ownership processes. 2018 was no exception. Here are 10 of our top articles from throughout the year: Top 10: Franchise News and Insights from 2018 1. Franchise Industry Statistics: Most-Popular Industries and Locations While buying a franchise requires a careful assessment of your personal skills, finances and interests, analyzing trends can also help you make an informed buying decision. We recently took a look at the most-popular franchise industries and the states with the most (and least) franchised businesses. 2. What Is the Universal Franchisee Bill of Rights? In this post for Blue MauMau, we provided our thoughts on the Universal Franchisee Bill of Rights and discussed some key takeaways for new and exiting franchisees. 3. FDDs, Franchise Agreements and Operations Manuals – What Do Prospective Franchisees Need to Know? There are three main legal documents that govern the franchise relationship: The Franchise Disclosure Document (FDD), the franchise agreement and the Operations Manual. In this article, we provide an introduction to each and discuss some of their key implications for franchisees. 4. What Does it Mean if My Franchise Agreement Requires “Mandatory Arbitration”? While arbitration is supposed to provide a level playing field, the reality is that “mandatory arbitration” clauses often heavily favor the franchisor. We explained why in this article from Summer 2018. 5. What Can You Really Hope to Negotiate in Your Franchise Agreement? When buying a franchise, […]

Read More

All franchise agreements contain conditions of renewal. These are provisions that require the franchisee to satisfy certain requirements in order to extend its franchise rights beyond the end of the initial term. Common renewal conditions include an obligation to cure any outstanding defaults (i.e. pay any past-due advertising fund fees or royalties), an obligation to update to then-current system standards and an obligation to sign the franchisor’s then-current franchise agreement. For many franchisees, this last condition will be the only sticking point. They will be up-to-date on all aspects of their franchise, and they will be a solid profit center for the franchisor. But, in order to renew, they will still be required to sign a new agreement, which could have terms that are substantially different from those that currently govern their franchise. The Risks of Signing Your Franchisor’s “Then-Current” Franchise Agreement Why does this matter? Among other potential concerns, being forced to sign a new franchise agreement could mean: Agreeing to a higher royalty percentage or new royalty terms (i.e. a “fixed” or minimum royalty). Agreeing to a higher advertising fund contribution percentage. Agreeing to new requirements regarding suppliers, system standards and mandatory upgrades. Agreeing to new, less-favorable terms with regard to indemnification and dispute resolution. Agreeing to grant additional termination rights to the franchisor and to face additional obligations in the event of termination. Agreeing to even stricter conditions for subsequent renewals. Losing the benefit of terms that you negotiated in your original franchise agreement. With these potential […]

Read More

Oral promises can be legally enforced, but good luck getting your franchisor to agree to something that it did not put in writing. Unfortunately, from the initial sales process through the waning moments of a franchisor-franchisee relationship, it is not unusual for franchisors and their representatives to say things knowing that they will be difficult (if not impossible) to ever prove in court. With this in mind, as a franchisee, it is important to get into the habit of getting things in writing. From negotiating changes to your franchise agreement (instead of relying on a sales representative who says, “Don’t worry about that, I’ve never seen us actually use that clause against a franchisee.”) to communicating via email when you have issues down the road, documentation can be your best friend. Follow up when you do not get answers, send confirmatory emails (i.e. “To confirm what we just discussed . . .”) and keep copies of everything you get in writing. Litigating Disputes Based on Oral Promises But, let’s suppose you are past the point of no return. Let’s suppose that you bought a franchise based upon oral representations that proved to be false, or that you are now facing potential termination due to your reliance on an oral promise – both of which are common scenarios. What legal options do you have available? 1. Proving the Oral Promise One option is to try to prove the oral promise. While this can be difficult, it is not always impossible. For […]

Read More

The Covenant of Good Faith and Franchising in 2019: Survival, Opportunism, and Distortion By: Jeffrey M. Goldstein The seemingly-omnipresent, but erroneous, belief that franchisors are legally prohibited at all times and in every instance from acting unreasonably or in bad faith vis-à-vis their franchisees is held not just by franchisees, but also by some prominent franchise lawyers. Rarely a day goes by without a potential client suggesting to me that his or her franchisor has acted unlawfully by having failed to meet its obligation to act in good faith and with fair dealing. Many times these franchisees repeat to me verbatim what they’ve just been told by another franchisee litigator to whom they’ve just spoken on the phone. Whereas franchisees generally readily latch onto the incorrect belief as a matter of survival, some franchise lawyers regularly peddle the myth to generate business. Quite simply, the misuse, misunderstanding and misapplication – intentional and unintentional — of the covenant of good faith in conversation, teaching and litigation leads ineluctably, over time, to a severe diminution in the inherent worth of the covenant of good faith as well as its use as a potential litigation tool for franchisees. The implied covenant of good faith and fair dealing is not applied uniformly by courts. Indeed, the covenant of good faith is a pure doctrinal bastard – sometimes it is viewed by courts as implied, and other times it is viewed as only explicit; sometimes it is used by courts to merely interpret a contract, […]

Read More