If you are thinking about buying a franchise, you know that you need to make an informed investment decision, and you know that you need to go into your franchise opportunity eyes wide open. But, do you know what this actually entails? While most prospective franchisees have a general idea of the financial risks involved with buying a franchise, far fewer have an appreciation of the legal risks that have the potential to place their entire investment in jeopardy. What kinds of legal risks are we talking about? Here are five important legal issues not to overlook when pursuing a franchise opportunity: Issue #1: Inadequate Territorial Protections What is your understanding with regard to your territorial rights? Are you to receive an “exclusive” or “protected” territory? If so, what do these terms really mean? While lots of franchisors offer their franchisees some form of territorial protection, protections vary greatly between franchise systems, and you need to make sure your franchise agreement clearly defines the rights you are being granted. Issue #2: Insufficient Protections for Renewal When the initial term of your franchise agreement expires, will you have the ability to renew? While it is fairly standard for franchisors to offer their franchisees renewal rights, these “rights” are usually contingent upon satisfying a broad range of requirements. If the conditions for renewal in your franchise agreement are too franchisor-friendly, you may find yourself on the outside looking in when your initial term expires. Issue #3: Termination Risks for Late Payments and […]

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FLORIDA FEDERAL COURT REJECTS FRANCHISE LAWYERS’ FEE REQUEST AS ‘TOO HIGH’ In a recent franchise case in Florida, a federal district court refused to grant the fees requested by the franchisee lawyers’ in their fee petition because the franchisee lawyers’ fees were “too high” when viewed against the rates charged by other lawyers in the area who are experienced in complex litigation; in slashing the lawyers’ requested fees by almost 40% across the board, the court stated: “The case at bar was not complex, and Defendant Childress won on the basis of default [with the other side not putting up a defense].” Drone Nerds Franchising Llc v. Childress United States District Court for the Southern District of Florida October 7, 2020, Decided; October 7, 2020, Entered on Docket Case No. 19-CV-61153-RUIZ/STRAUSS Excerpts of the Case: REPORT AND RECOMMENDATION THIS CAUSE came before me upon Defendant/Counter-Plaintiff’s [(“Defendant Childress’”)] Motion for Attorneys’ Fees and Costs (DE 83) (the “Motion”). The Motion has been referred to me to take all action as required by law pursuant to 28 U.S.C. § 636(b)(1)(A) and the Magistrate Judge Rules of the Local Rules of the Southern District of Florida. (DE 84). I have reviewed the Motion, the record in this case and am otherwise duly advised. For the [*3]  reasons discussed herein, I RECOMMEND that the Motion (DE 83), be GRANTED IN PART and DENIED IN PART. Specifically, I recommend that attorneys’ fees be awarded in the amount of $20,947.50 and that no costs be awarded. DISCUSSION […]

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On September 28, 2020, the Franchise Times released its list of the “Top 200+” franchises for 2020. The article announcing the release begins with a sobering proviso: “[T]his year’s Franchise Times Top 200+ may be the last look at the old world before 2020 results change everything.” As the International Franchise Association (IFA) recently reported, the franchise industry has been hit hard by the COVID-19 crisis, with more than 32,000 franchises closing in just the past six months. But, since the Franchise Times’ current Top 200+ list is based on 2019 data, the figures look pretty good. Franchise sales grew significantly last year, while the biggest brands in franchising continued to get even bigger: “Based on 2019 systemwide sales, franchising’s strongest brands gained strength, emerging hot brands kept bringing the heat and brands on the decline continued to slow. Aside from a few surprises, the momentum of franchising continued on the same upward trajectory seen in the last few years. “In all, the top-ranking 200 brands grew sales by 4.5 percent . . . . That represents a slight acceleration from last year, when the top 200 grew sales by 4.2 percent. . . . The top 10 brands grew even faster, expanding sales by 5.2 percent to add $16.2 billion, just over half of the overall sales growth for the first 200 on the list.” Big Names Continued to Dominate Franchising in 2019 While more companies turn to franchising every year, the Franchise Times’ data show that the big […]

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A recent article from the International Franchise Association (IFA) sheds light on the significant impact that the COVID-19 crisis has had on the franchise industry over the past six months. The article, which relies on a report prepared by FRANdata, concludes by quoting the organization’s President and CEO as stating that, “COVID-19 has caused a staggering amount of business closures and layoffs across franchise businesses. . . . Additional broad-based and long-term Congressional action is desperately needed to stave off additional closures and layoffs, particularly for the hardest-hit businesses.” The COVID-19 Crisis’s Impact on the Franchise Industry The IFA’s article reports that in the first six months of the COVID-19 crisis, “[m]ore than 1.4 million franchise jobs [have been] lost, and more than 32,000 franchise businesses have closed.” This includes nearly 11,000 franchises that have closed permanently. Worryingly, the IFA projects that another 36,000 franchised businesses will close in the next six months if nothing is done to curb the economic impacts of the pandemic. Overall, FRANdata predicts that one in 20 small businesses will close permanently over the next six months if the current economic trends continue. Additional notable statistics from the FRANdata report include: As of the end of August, just 26 percent of franchises have resumed their normal operations or faced only minimal effects from the COVID-19 pandemic. On average, franchisees have experienced a 19.3 percent decline in revenue during the COVID-19 pandemic. Of the 1.4 million employees in the franchise industry who have lost their jobs, […]

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