If you are facing a dispute with your franchisor, you need to be very careful to protect yourself. Whether your goal is to save your franchise or to exit the system and move on to your next opportunity, you need to avoid a variety of mistakes that could prove very costly. As national franchise lawyer Jeffrey M. Goldstein explains, while franchisees have clear legal rights, these rights are limited in various respects, and those who do not take advantage of the rights they have available can find themselves facing unnecessary consequences.
What to Do (and What Not to Do) if You Are Facing a Dispute with Your Franchisor
There are several important steps you need to take promptly if you are facing a dispute with your franchisor. Crucially, there are just as many mistakes you need to avoid. With this in mind, here are seven important tips for protecting your legal rights as you consider the options you have available:
1. Make Sure You Have a Clear Understanding of Both Parties’ Legal Rights
First, you need to make sure you have a clear understanding of both parties’ legal rights. You should review your franchise agreement to make sure you know the answers to the following questions; and, if you are unsure about any of these, you should consult with a franchise lawyer promptly:
- When can your franchisor terminate your franchise agreement?
- Do you have a right to cure prior to termination?
- Do you have any rights to terminate your franchise agreement (and does your franchisor have a right to cure)?
- What other remedies are available in the event of a dispute?
- Does your franchisor have the right to enforce any post-termination covenants (i.e., covenants not to solicit or not to compete)?
These are all critical questions that will inform your next steps. If you are concerned that your franchisor may have the right to terminate your franchise, it will be especially important for you to act promptly, as it can be far more difficult to protect your legal rights once your franchise has been terminated.
2. Make Sure You Have a Clear Understanding of Both Parties’ Legal Options
Along with making sure you have a clear understanding of both parties’ legal rights, you should also make sure you have a clear understanding of both parties’ legal options. Here, we are primarily talking about options with regard to enforcement. Does your franchise agreement include a mandatory mediation or arbitration provision? Are there any carve-outs that allow you (or, more likely, your franchisor) to go directly to court? These are also critical questions that you will need to answer in order to make informed decisions about how to move forward.
3. Observe Your Confidentiality Obligations
For many franchisees, their first instinct when facing a dispute with their franchisor is to take to social media. However, this can prove to be a very costly mistake. Not only does this frequently allow franchisors to use franchisees’ own words against them, but many franchisees end up violating their confidentiality obligations as well.
Franchise agreements almost universally include broad confidentiality obligations for franchisees. Along with covering confidential and proprietary system-related information, these clauses typically cover information related to franchisor-franchisee disputes as well. Franchisors generally don’t want their disputes publicized, as this can both tarnish the brand’s reputation as a whole and deter would-be franchise buyers. Regardless of whether you have violated your franchise agreement previously, violating your confidentiality obligations could lead to adverse consequences.
4. Avoid Breaching Your Franchise Agreement (if Possible)
In addition to complying with your confidentiality obligations, it will be important to continue complying with the other substantive provisions of your franchise agreement as well (if possible). Among other things, this means that you should:
- Continue making your royalty payments
- Continue making your marketing fund contributions
- Continue buying from designated suppliers (if required)
- Continue selling all mandatory products and services (if required)
- Continue complying with your franchisor’s other system standards
Even if your franchisor has breached your franchise agreement, this does not justify your non-compliance. While it can be frustrating, continuing to meet your contractual obligations for now will be in your best interests in the long term.
5. Preserve as Much Documentation as Possible
Regardless of the nature of your dispute with your franchisor, documentation will be the key to protecting your legal rights. With this in mind, you should try to preserve as much documentation as possible. Be sure to keep copies of all emails, direct messages and texts; and, if you receive a termination notice or any other formal communication from your franchisor (or its law firm), be sure to keep this as well.
At the same time, you should keep in mind that your franchisor will be preserving as much documentation as possible, too. This means that you need to be very careful about what you put in writing. Once again, if you have questions about what you should be doing (or not doing), you should consult with a franchise lawyer promptly.
6. Try to Find Out if Other Franchisees are Facing Similar Issues
Another good step to take at this stage is to try to find out if other franchisees are facing similar issues. If so, you may be able to work together and leverage your collective resources to achieve a favorable outcome.
7. Talk to a Franchise Lawyer who Exclusively Represents Franchisees
Facing a dispute with your franchisor is a complex and high-risk situation. As a result, you need to make sure you are relying on sound legal advice. To ensure that you are doing everything necessary to protect yourself (and avoid mistakes that could jeopardize your franchise), you should speak with an experienced franchise lawyer who exclusively represents franchisees—and you should do so as soon as possible.
Request a Free and Confidential Consultation with National Franchise Lawyer Jeffrey M. Goldstein
Are you facing a dispute with your franchisor? If so, we invite you to get in touch. To request a free and confidential consultation with national franchise lawyer Jeffrey M. Goldstein, please call 202-293-3947 or inquire online today.
