Search Results: encroachment

Nov 30, 2023

For many franchisees, territorial protections are essential to their profitability. Facing competition from multiple businesses serving potential clients or customers both in person and remotely, franchisees need to know that they will not face additional competition from within their own brands.

Mar 3, 2022

As a franchisee with a protected territory, you expect your franchisor to respect your territorial rights. After all, your franchisor granted them to you in the first place (unless you live in one of the limited numbers of states that provide statutory territorial protections to franchisees). But, what if it doesn’t? What if your franchisor encroaches on your protected territory? Franchise attorney Jeffrey M. Goldstein explains.

May 23, 2018

As a franchisee, encroachment by the franchisor or another franchisee can be among the greatest risks to long-term sustainability. If would-be customers (most of whom do not understand independent franchise ownership) have access to your brand at a more-convenient location, they will have little incentive to visit your store or restaurant. As a result, territorial protections are among the most-important protections available to franchisees, and state franchise relationship laws often provide critical protections when disputes regarding encroachment arise. A recent successful lawsuit filed by El Pollo Loco franchisees in California state court illustrates the types of protections that are available to franchisees in cases of encroachment: California Jury Rules in Favor of Husband-and-Wife Franchisee The case involved a dispute between husband-and-wife franchisees Michael and Janice Bryman and restaurant franchisor El Pollo Loco Inc. According to news reports, the Brymans sued after their franchisor opened two new locations within their territory. El Pollo Loco Inc. apparently did so in reliance on a standard provision in their franchise agreement which stated that it had the right to place company-owned locations “in the immediate vicinity of or adjacent to” its franchisees’ outlets, the franchisee’s territorial rights notwithstanding. Critically, prior to the jury verdict on damages, the trial judge ruled that this provision of the franchise agreement was unconscionable as a matter of law. As such, it was unenforceable, and could not be used to justify the opening of two company-owned outlets that competed directly with the franchisees’ restaurants. Subsequently, the jury also found […]

Apr 8, 2018

Reasonable Franchise Growth or Unreasonable Encroachment? By: Jeffrey M. Goldstein New franchise openings are a lightning rod in the franchise world; while franchisor advocates see new location openings as a legitimate mode of franchise growth, franchisee advocates view such openings as unreasonable franchise encroachment. On a semantic level, one of the most exasperating problems hindering meaningful discussion of the franchise growth issue is the unsystematic and undisciplined use of the term encroachment. Very simply, encroachment is an outcome-determinative term; as used in the franchise context it includes both reasonable and unreasonable growth. Accordingly, because it includes any growth that could or does cause any negative impact on an existing franchisee, the term is descriptively, conceptually and analytically useless at best, and destructive at worst. Further, the term encroachment similarly fails to account for the crucial distinction between non-opportunistic and opportunistic growth. In this regard, opportunistic behavior may be found in both the reasonable and unreasonable growth scenarios. Making matters worse from a semantic perspective is that the term opportunism itself is uncertain, ambiguous and anecdotal. Although opportunism in the relevant law and economics literature possesses elements of selfishness and self-interest, there is no consensus on whether all forms of opportunism harm efficiency. Again, the literature has failed to provide a uniformly-accepted definition of opportunism in the world of contracts, economics and franchising. Whereas many types of conduct have been identified as opportunistic (e.g., shirking, free-riding, stealing), no uniform theoretical definition has been formulated or accepted. One common element of many […]

May 7, 2015

Franchisor Encroachment: Beware of Your Franchise Agreement As with most issues in franchise law that end up in litigation, your chances of prevailing in court against your franchisor on a claim that the franchisor has violated your exclusive territory may be wholly dependent on the specific language that you and your lawyer were successful in having included in your franchise agreement. Also, as you will see below, the legal analysis that must be undertaken to negotiate a franchise agreement to fully protect a franchisee from all types of potential encroachment is too complex and esoteric to be performed adequately without expert legal assistance. I have encountered prolific cases where the franchisee, whose business has been decimated by encroachment, has told me that he “thought” that the language he had personally negotiated and included in the franchise agreement granted him an exclusive territory. In many of these cases, contrary to the beliefs of these franchisees, the franchise agreements contained no language whatsoever regarding an exclusive territory. In other cases, even where the franchise agreement did contain some language relating to an exclusive territory, the language actually gave the franchisor explicit permission to open competing franchises anywhere that the franchisor chose to put them. Although the specific language in a franchise agreement addressing or relating to an exclusive territory often differs for each franchise brand (and many times even within the same brand), it is possible to categorize “exclusive territory” language into four general types: (1) language that grants a franchisee only […]

May 4, 2015

Our Franchise Attorneys Can Help With The Real And Momentous Danger That Is Franchisor Encroachment Franchisees and dealers are frequently confronted with the real and momentous danger arising from supplier and franchisor encroachment. Franchise encroachment usually stems from the opening of new and competing franchises or distributors near the geographic territory of an existing franchise or dealership. Similarly, franchisors, suppliers or manufacturers’ newly-adopted marketing plans, whereby they distribute products and services directly to retail customers, present a threat to franchisees and dealers as they are cut out from the existing distribution and profit chain. Dealers and Franchisees are highly vulnerable to such territorial and sales encroachment given that the language in most franchise and distribution agreements explicitly permits it. From a historical perspective, at the time franchising initially began, franchisors, suppliers and manufacturers ordinarily, as a matter of course, granted franchisees and dealers some type of territorial exclusivity. Under market conditions at that time, such protection was expected and demanded by franchisees and dealers. Similarly, franchisees and dealers were protected from direct competition from their franchisors, suppliers and manufacturers through new distribution channels. As franchising matured as a distribution method, and as legal and economic power shifted precipitously toward franchisors and suppliers, the language in distribution and franchise agreements safeguarding franchisee or dealers’ territories and customers was intentionally abandoned by franchisors and suppliers when they drafted franchise or distribution agreements. As the pendulum of power continued to swing further away from franchisees and dealers, franchise and distribution agreements began to […]

Mar 29, 2024

Franchise attorney Jeffrey M. Goldstein, founder of Goldstein Law Firm, PLLC, will speak at the Franchise Times Legal Eagles Virtual Summit on April 10, 2024. The Virtual Summit takes place from 11:00am EST to 4:00pm EST.

Feb 15, 2024

Disputes between franchisors and their franchisees can involve a wide range of issues. As a franchisee, it is important to be aware of these issues so that you know when legal action may be necessary to protect your franchise. When these issues arise, informed decision-making is critical, and this makes it important to speak with an experienced franchise attorney as soon as possible.

Dec 29, 2023

Each year, we publish lots of articles for franchisees on our blog. We know that being a franchisee can be hard, and we want to make sure that those who need legal help are able to make informed decisions about their next steps. While some of our articles are relevant to a specific point in time, most are designed to serve as resources for years to come.  

Jul 31, 2023

Like all industries, franchisor-franchisee relationships in the hotel industry often lead to disputes. Franchisors often over-promise and under-deliver, and franchisees often find themselves struggling to remain solvent due to factors beyond their control.