Author: Goldstein Law Firm

What Happens When You have a Dispute with Your Franchisor?

Feb 28, 2020 - Blog by |

When you bought your franchise, the last thing you expected was that you would end up in a dispute with your franchisor. You had a good relationship with the people you talked to, you were excited about the opportunity, and it seemed like everyone was on the same page. But now, the relationship has soured, you aren’t happy with your outlet’s financial performance, and you find yourself in need of a franchise dispute lawyer. What happens now? Coming to Terms with Your Franchisor There are a number of potential ways to resolve franchise disputes, and the options that are available depend on the specific facts and circumstances involved. For example, if you have received a notice of termination, you may need to act more quickly – and your options may be more limited – than if you were facing a dispute with regard to something like advertising approvals or adopting an expensive new point-of-sale system. 1. Attempting to Negotiate a Mutually-Agreeable Resolution Generally speaking, however, your first option will be to attempt to negotiate a mutually-agreeable resolution. Is there a misunderstanding that simply needs to be cleared up? Is it in both parties’ best interests to quickly find a way forward? If so, then your chances of negotiating an outcome that you can live with might be fairly good. Negotiating doesn’t have to mean sitting down in a board room and going toe-to-toe. In fact, in many cases, issues can be resolved with an email exchange or a few phone […]

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2020 Franchise Industry and Economic Data

Feb 26, 2020 - Blog by |

In January 2020, Franchise Direct published two articles, A Look at How Franchises Impact the Economy and Franchising by the Numbers, that provide a nice overview of the current state of the franchise industry. Here, franchise attorney Jeffrey M. Goldstein covers some of the highlights: 1. There are More than 750,000 Franchises in the U.S. with More than 8 Million Employees According to Franchise Direct, as of January 2020, “[i]n the United States, over 750,000 franchise establishments are operating and employ around 8.17 million people.” Franchise Direct also reports that another 13.3 million jobs are “supported by franchises.” Citing the most-recent economic data, Franchise Direct reports that gross revenue from franchisees topped $868 billion in 2016, compared with $675 billion a decade earlier. 2. Food Continues to Dominate the Franchise Industry Across all sectors, food establishments accounted for the most employment in franchising, providing just under 473,000 jobs across the country. Based on global sales data, the three most-successful U.S.-based franchises are McDonalds, 7-Eleven, and KFC. 3. Franchise Ownership Demographics are Shifting It used to be that the majority of franchise owners were middle-aged or older, and typically seeking to transition out of an unfulfilling job or use their career experience to build their own business. While this is still the case today, Franchise Direct reports that 12 percent of franchisees are now 34 years of age or younger, and more than half of franchisees (54 percent) own two or more outlets. 4.  Franchising is Expected to Continue Its Upward […]

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IFA Opposes Federal PRO Act, Calling It “The Most Anti-Franchise Bill in Modern Congressional History”

Feb 21, 2020 - Blog by |

On February 7, 2020, the International Franchise Association (IFA) published an article expressing its strong opposition to the Protecting the Right to Organize (PRO) Act (H.R. 2474), which passed in the U.S. House of Representatives on February 6. The PRO Act proposes to codify the National Labor Relations Board’s (NLRB) joint-employer standard adopted in its highly-controversial Browning-Ferris decision from 2015. It would also adopt certain aspects of the California state court decision of Dynamex Operations West v. Superior Court, which created a so-called “ABC” test for determining whether an individual should be classified as an independent contractor or an employee. According to the IFA: “This bill would pose a massive threat to America’s 733,000 franchise businesses and the 7.6 million workers they employ. Already, the joint employer standard that this bill seeks to codify has cost the franchise industry $33.3 billion per year and led to a 93% increase in joint employment litigation. . . . [The PRO Act] could have the detrimental impact of turning every franchise owner into a de-facto employee of the brand.” The Protecting the Right to Organize (PRO) Act (H.R. 2474) In its current form, the PRO Act, if enacted, would create a new standard for joint employment that follows the NLRB’s Browning-Ferris decision. In pertinent part, H.R. 2474 states: “Section 2(2) of the National Labor Relations Act (29 U.S.C. 152(2)) is amended by adding at the end the following: ‘Two or more persons shall be employers with respect to an employee if each such […]

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A.I. in Franchising: What Do Franchisees Need to Know?

Feb 14, 2020 - Blog by |

A recent article on 1851franchise.com discusses three ways that artificial intelligence (A.I.) has already made its way into the franchise industry, with a particularly-high adoption rate in the restaurant sector. Start-ups and well-established franchised brands are utilizing A.I. in a variety of ways—and they are forcing their franchisees to utilize A.I. as well. As a current (or prospective) franchisee, what do you need to know about the franchise industry’s acceptance of A.I. as a business development tool, risk mitigation tool and go-to-market strategy? Here are answers to some commonly-asked questions from national franchise attorney Jeffrey M. Goldstein: Q: How are Franchisors Requiring Franchisees to Make Use of A.I.? While artificial intelligence as something other than a sci-fi fantasy is still difficult for many people to grasp, the truth is that many companies are already using A.I. in many different ways. Within franchising, companies are utilizing A.I. for everything from tracking (and responding to) consumer sentiment to taking orders in-person and online. Q: Who Bears the Cost of Adopting New A.I. Technologies? Predictably, franchisors are forcing franchisees to bear the cost of adopting new A.I. technologies. Franchisors almost universally reserve the right to require franchisees to adopt system “updates” at their own expense, and most franchise agreements do not place any limits on the nature, frequency or cost of updates franchisors can require. Q: Can Franchisors Force Franchisees to Abandon Old Technologies in Favor of A.I.? In most cases, yes. Uniformity and “standards” are hallmarks of the franchise system, and franchisors […]

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Is There Really Such a Thing as a Recession-Proof Franchise?

Feb 7, 2020 - Blog by |

Lots of franchisors claim to offer “recession-proof” franchises. The basic idea behind this claim is that the products or services their franchisees offer either: (i) are so essential that people will need to pay for them no matter what, or (ii) come into even higher demand when the economy takes a downturn. While both of these make sense in theory, it is important not to lose sight of the fact that no franchise opportunity guarantees success. Even if your business is capable of surviving during a recession, this does not mean that it will survive during a recession (or even during more prosperous times). Recession-Resistant Franchise Sectors Perhaps, then, the term “recession-proof” isn’t quite as apt as “recession-resistant.” A recent article on Entrepreneur.com uses this term to describe five franchise sectors that might be less susceptible to economic contraction: Restoration Services – “[C]ompanies in the restoration business will always have customers. . . . Plus, much of the work is paid for through various types of insurance so the bulk of the bill may not fall to the homeowner.” Senior Home Care – America is getting older . . . [and] [s]enior home care allows . . . non-medical caregivers to come to seniors’ homes and help them with everyday chores they aren’t able to do themselves for a fraction of what senior living communities would charge.” Hair Care – “People may cut back on some personal grooming services, but hair care is rarely one of them. . . . […]

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What Happens When a Franchisor Requires Franchisees to Install New Point-of-Sale Software?

Jan 17, 2020 - Blog by |

As we recently discussed, franchisors typically reserve broad rights to require franchisees to adopt system changes at their own expense. A case filed in federal district court last year confirms that franchisors who include the necessary protections in their franchise agreements can mandate expensive system changes – even if the changes are undesirable to franchisees. JDS Group v. Metal Supermarkets Franchising Am., Inc. In the case of JDS Group v. Metal Supermarkets Franchising Am., Inc. (WD New York June 20, 2017), JDS Group challenged its franchisor’s requirement to replace outdated point-of-sale (POS) software with a new application it intended to implement system-wide. Despite three years of development and a total cost in excess of $1 million, JDS Group alleged that the new POS software did not function as it should. It also submitted declarations from six other franchisees complaining of serious issues with the software. Although JDS Group’s franchise agreement gave Metal Supermarkets Franchising Am., Inc. the right to mandate use of specific POS software applications, it alleged that the mandate to adopt ineffective software constituted a breach of the implied covenant of good faith and fair dealing and violated the Washington Franchise Investment Protection Act (FIPA). Under FIPA, franchisors have an obligation to deal with their franchisees in good faith, and they cannot require franchisees to adopt system changes unless the changes are justified on business grounds. The franchisor countered that the vast majority of its franchisees, “had not been forced to close their stores,” as a result of […]

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Do I Need to Talk to a Franchise Lawyer Before I Buy a Franchise?

Jan 10, 2020 - Blog by |

Buying a franchise is an expensive proposition. From the initial franchise fee to the reserve capital you will need for your first six to twelve months of operations, as a prospective franchisee, every penny matters. With this in mind, do you really need to speak with a franchise lawyer before you buy? If you have already made up your mind, what is the benefit of having someone review the Franchise Disclosure Document (FDD) and franchise agreement? Unfortunately, many prospective franchisees attempt to save money by foregoing a legal review, and their decision ends up costing them substantially in the years to come. 10 Reasons to Hire a Franchise Lawyer Before You Sign There are numerous reasons why all prospective franchisees should seek legal representation. Here are 10 examples: You Need to Make Sure You are Making an Informed Decision. Have you read and understood the entire FDD? What about the franchise agreement? Have you conducted adequate due diligence? Your Franchisor May be Providing Incomplete Information. Franchisors have sales funnels, and their goal is to get you to sign on the dotted line. Are you sure you have the complete story about your franchise opportunity? There Are Hidden Risks to Buying a Franchise. Is the franchisor at risk for bankruptcy or litigation? Could it lose the exclusive right to use its trademark? You Need to Know Your Obligations. Can you buy from any source you choose, or are you limited to approved products and approved suppliers? Your Franchisor Probably Has Broad […]

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5 Hidden Risks of Buying a Franchise

Jan 3, 2020 - Blog by |

There are a number of obvious risks involved in buying a franchise: Your business could fail. You could lose your investment. You could end up in litigation with your franchisor. But, along with these risks, there are a number of hidden risks as well. As a prospective franchisee, here are five important legal considerations to keep in mind: 1. The Franchisor Could Be Facing Bankruptcy or Costly Litigation. When you looked at your franchisor’s Franchise Disclosure Document (FDD), did you spend much time looking at Items 3 and 4? Probably not. These early Items are frequently overlooked, but they can provide critical insights into a franchisor’s solvency and financial stability. If your franchisor files for bankruptcy or incurs a substantial judgment in litigation, this could have devastating consequences for the franchise system as a whole. Unlikely as this may be, it is not a risk to be ignored completely. 2. The Franchisor’s Principal Trademark Could be in Jeopardy. If you are like most franchisees, one of your primary considerations in choosing a franchise was the recognizability of the franchisor’s brand. In legal terms, a brand is known as a “trademark,” and franchisors can lose their trademark rights under a variety of different circumstances. Ideally, your franchisor should have its principal trademarks registered with the U.S. Patent and Trademark Office, and it should be actively monitoring and enforcing its trademark rights. If your franchisor’s trademarks lose their exclusivity, you could lose the right to use them as well. 3. Your Territorial […]

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Is Your Franchise Agreement Set to Expire in 2020?

Dec 31, 2019 - Blog by |

If your franchise agreement is set to expire in 2020, you need to make an important decision: Is it time to let your franchise rights expire; or, do you want to renew? Dealing with the expiration of your franchise agreement involves a variety of different considerations, and there are several important facts you need to know. Here is an overview of some of the key factors you will need to keep in mind: 6 Considerations for Dealing with Franchise Expiration and Renewal 1. You Need to Provide Advance Notice if You Intend to Renew If you want to keep your franchise for another term, you will need to provide your franchisor with advance notice of your intent to renew. The amount of notice you need to provide will be determined by the specific terms of your franchise agreement. 2. You Will Also Need to Satisfy the Conditions for Renewal As a franchisee, your “right” to renew is not guaranteed. Your ability to secure a renewal term is subject to various conditions (which, again, are spelled out in your franchise agreement), and you will need to satisfy all of these conditions in order to keep your franchise beyond 2020. 3. You Might Need to Deal with Your Lease as Well If you have a lease for a retail or commercial location, then you will also need to see what your lease says about term and renewal. Does your lease expire concurrently with your franchise agreement? If so, what are the conditions […]

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2020 Franchise Forecast: How Will the Industry Change?

Dec 24, 2019 - Blog by |

We saw a lot of change in the franchise industry in 2019, and all indications are that this trend will continue through 2020. Recently, Score.org published an article highlighting four trends that have the potential to have a significant influence on franchisees – and the franchise industry as a whole – in the New Year. 4 Franchise Trends Poised to Shape the Industry in 2020 Trend #1: Demographic Shifts are Influencing the Market According to Score.org, three major demographic shifts are each having their own unique impact on the franchise industry. First, the organization notes, consumer demand is now dominated by the Millennial generation. Second, Baby Boomers are buying franchises in record numbers by drawing from their long-term savings. Third, seniors are “aging out of the workforce,” and this is creating more alignment between franchise ownership and franchise patronage. Together, these three factors mean that sectors such as health and wellness may be poised to dominate the industry long-term. Trend #2: Multi-Unit Franchise Ownership is Going Mainstream “[M]ore than half of all franchise units in the U.S. are owned and run by multi-unit operators.” This has not always been the case, and Score.org attributes this shift to the growing desire among prospective franchisees to, “establish a small business empire.” While being a multi-unit owner isn’t for everyone (taking financial standing and various other considerations into account), as more prospective franchisees continue to express interest, franchisors may begin doing more to make multi-unit opportunities more accessible to all. Trend #3: Homeowners […]

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