As a franchisee, there is a reasonable probability that, at some point, you will have a disagreement with your franchisor. Whether you think that advertising fund contributions could be better spent or you believe that the franchise system is failing as a whole, the longer you own your franchise, the more likely it will become that a dispute will arise.
Not all disputes are grounds for litigation. Franchise agreements provide extraordinarily-broad protections to franchisors; and, in some cases, it simply will not be worth the cost to hire an attorney. But, franchise litigation is more common than many franchisees realize; and, if you think you may have a claim against your franchisor (or if you are concerned that your franchisor may take legal action against you), it is worth taking appropriate steps to prepare.
What Not to Do When Anticipating Franchise Litigation
When preparing for the possibility of litigation (or mandatory mediation or arbitration), knowing what not to do is just as important as knowing what to do. The following are all potentially-costly mistakes that franchisees should avoid when anticipating mediation, arbitration or litigation with their franchisor:
1. Stopping Payment of Royalties and Advertising Fund Contributions
No matter how dissatisfied you may be with your franchisor, and regardless of whether your franchisor has violated the terms of your franchise agreement, you should not stop payment of royalties and advertising fund contributions unless advised to do so by your legal counsel. Even if your franchisor owes you money, you are not entitled to withhold payment, and doing so could put you in default under your agreement.
2. Threatening to Stop Payment or Otherwise Breach the Franchise Agreement
Threatening to stop payment or otherwise breach your franchise agreement (i.e. by refusing a mandatory system “upgrade”) could lead to a claim of anticipatory breach, and this could lead to a world of trouble. When facing a potential dispute with your franchisor, you do not want to do anything that could provide your franchisor with a legal claim against you.
3. Communicating with the Franchisor in Writing
When anticipating a dispute, it is best to keep any communications with your franchisor to a minimum. Do what you need to do in order to comply with your franchise agreement (again, unless advised otherwise by your attorney), but avoid sending emails or leaving voicemail messages that could potentially be used against you.
4. Communicating with Others about the Dispute in Writing
If your dispute goes to litigation, you could be required to disclose all communications that are relevant to the dispute. This includes communications with third parties other than your legal counsel.
5. Deleting or Destroying Relevant Records
Finally, if you have copies of potentially-damaging emails, or if you have evidence that you have done something (or not done something) that may put you in breach of your franchise agreement, you need to keep them. Deleting electronic files or shredding hardcopy records in anticipation of litigation is a serious matter – and one that can have significant negative ramifications.
Schedule a Free Consultation With an Experienced Franchise Litigation Attorney
Jeffrey M. Goldstein is a franchise litigation attorney with over 30 years of experience exclusively representing franchisees and dealers. If you are facing a dispute with your franchisor and would like to learn more about the options you have available, you can call (202) 293-3947 or contact the Goldstein Law Firm online for a free initial consultation.
