Author: Goldstein Law Firm

Ultimate Guide to Franchise Litigation for Franchisees – Part 3

Jul 31, 2020 - Blog by |

What Can You Expect in Mediation, Arbitration or Litigation? In Parts 1 and 2 of our Ultimate Guide to Franchise Litigation for Franchisees, we covered common issues in franchise litigation and common franchise agreement provisions that can impact franchisees’ rights during the dispute resolution process. In Part 3, we are covering what you can expect when you hire a franchise attorney to represent you in mediation, arbitration or litigation against your franchisor. Mediation and Arbitration: Two Very Different Forms of ADR While mediation and arbitration are often lumped together as forms of alternative dispute resolution (ADR), the reality is that these are very different proceedings. With mediation, there is no guarantee that the process will lead to a resolution. Instead, the parties negotiate with the help of a neutral third-party mediator, and they try to find a way to come to terms. In arbitration, however, the arbitrator’s role is to hear the parties’ evidence and then render a final decision. This decision is usually binding (as stipulated in the parties’ franchise agreement), although it may be possible to challenge the arbitrator’s decision in court in some cases. Mediation and arbitration both involve scheduled sessions at which the parties appear with their legal counsel. In mediation, these are essentially guided negotiation sessions, with the mediator serving to help keep the parties’ negotiations focused and offer potential compromise solutions. In arbitration, the parties will engage in some form of limited discovery beforehand, and then they will take turns presenting their evidence to […]

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Ultimate Guide to Franchise Litigation for Franchisees – Part 2

Jul 24, 2020 - Blog by |

What are the Relevant Provisions of Your Franchise Agreement? As with virtually all aspects of franchise ownership, when facing a dispute with your franchisor, one of the first things you need to do is review the relevant terms of your franchise agreement. Franchise agreements almost universally contain several terms that apply specifically to litigation and dispute resolution, and you will want to work closely with a franchise lawyer to make sure you understand how your franchise agreement impacts the options you have available. Does Your Franchise Agreement Contain a Mandatory ADR Clause? Many franchise agreements contain clauses that require the parties to submit most (but not all) disputes to mediation or arbitration. When franchisors include these provisions in their franchise agreements, they do so not because alternative dispute resolution (ADR) offers a level playing field, but because they believe that they can benefit from the process. Generally, mandatory ADR clauses apply to all franchisee-initiated disputes, and they apply to some disputes initiated by franchisors. Typically, disputes regarding franchisees’ payment obligations, unauthorized use of the franchisor’s trademarks and proprietary information, and other similar types of disputes are excepted. When mediation or arbitration is required, then pursuing mediation or arbitration will be a necessary precursor to pursuing litigation—assuming the mandatory ADR clause is enforceable. Where Does Your Franchise Agreement Require Disputes to Be Resolved? Franchise agreements also generally include jurisdiction and venue clauses that specify where mediation and arbitration must take place and where lawsuits need to be filed. Typically, this is […]

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Ultimate Guide to Franchise Litigation for Franchisees – Part 1

Jul 17, 2020 - Blog by |

What are the Grounds for Initiating Franchise Litigation? When you bought your franchise, you did not expect to end up with litigation with your franchisor. But, an issue has come up and there does not seem to be any other alternative, and you need to consider all of your options for protecting your investment. In this Ultimate Guide to Franchise Litigation for Franchisees, attorney Jeffrey M. Goldstein provides an overview of what franchisees need to know when facing contentious disputes with their franchisors. Here in Part 1, Mr. Goldstein covers the types of issues that tend to lead to litigation, with insights based on his 30-plus years of experience as a franchise litigation attorney exclusively representing franchisees. Common Issues in Franchise Litigation While there are numerous issues that can lead to litigation between franchisors and franchisees, some issues tend to come up more frequently than others. This includes issues that cause franchisors to initiate litigation against their franchisees, as well as issues that force franchisees to take action in order to try to save their franchises—or at least recoup as much of their initial investment as possible. On the franchisor side, some of the issues that most-commonly trigger the decision to take legal action against franchisees include: Non-payment of royalties or advertising fund contributions Non-payment of liquidated damages or “lost future royalties” post-termination Repeatedly operating outside of a franchisee’s designated territory Failing to adhere to system standards (either repeatedly or in a manner that represents a significant departure from the […]

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Should You Hire a Franchise Consultant to Help You Buy a Franchise?

Jul 10, 2020 - Blog by |

Buying a franchise is a big decision that requires a substantial investment, and there is a significant amount of risk involved. As a result, regardless of your background and experience, you are going to want help along the way. You know that you need to hire a franchise attorney to review the Franchise Disclosure Document (FDD) and help you negotiate the franchise agreement, but should you hire a franchise consultant as well? What Should You Look for in a Franchise Consultant? For many prospective franchisees, hiring a franchise consultant will be a good option. If you need help with things like budgeting and site selection, an experienced franchise consultant will be able to provide a lot of value as you work toward opening your franchise. If you believe that you could benefit from working with a franchise consultant, here are some factors to consider when choosing someone to advise you: Franchise Industry Experience – The franchise industry is unique in many respects; and, in order to advise you effectively, a franchise consultant will need to have deep industry experience. Ideally, he or she will have past experience as a successful franchisee or as a franchisor executive. Objectivity – When working with a franchise consultant, you need to be confident that he or she is providing objective advice. If it feels like a consultant is steering you toward a particular franchise opportunity, you will want to make sure this is based on an assessment of your best interests and not other […]

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Should You Consider a Franchise if You Were Laid Off Due to the Coronavirus Pandemic?

Jun 30, 2020 - Blog by |

The novel coronavirus pandemic is having unprecedented effects on our nation’s economy, and many companies are being forced to lay off their employees due to mandatory closures of “non-essential” businesses. Certain industries, such as the restaurant and fitness industries, have been hit particularly hard; and, in order to avoid the risk of being laid off again, some individuals may be considering the possibility of becoming their own boss by buying a franchise. If you fall into this category, should you think seriously about getting into the world of franchising? Here are some important considerations to keep in mind: 1. You Should Not Make a Long-Term Decision Based on Your Short-Term Circumstances While the novel coronavirus pandemic is (hopefully) a once-in-a-lifetime event, things will eventually return to normal. So, while you may be out of work for now, the job market will bounce back, and employers in certain industries are actually hiring aggressively during the pandemic. If you understand the franchise model and are serious about becoming a franchise owner, it may be an option worth considering. However, if you are simply focused on weathering the storm, there are likely better (and less risky) alternatives available. 2. You Will Need to Have Sufficient Cash Reserves to Build a Profitable Business When you buy a franchise, your business will not be profitable immediately. It takes time to build a profitable business, and most franchisors recommend that their franchisees have anywhere from three to twelve months of capital reserves on hand when they […]

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Franchise Times Announces its Best Franchises to Buy in 2020

Jun 26, 2020 - Blog by |

Each year, the Franchise Times publishes its list of “Best Franchises to Buy,” also known as the “‘Zor Awards” (for those who aren’t in the know, “‘zor” is industry shorthand for “franchisor”). It recently published its list of award recipients for 2020, with the following franchises named the best in their respective categories: Around the House (Home Repair) – The Glass Guru Quick Flip (Quick-Service Burger Restaurants) – Culver’s Fresh Baked (Bakeries and Cafés) – McAlister’s Deli Cut & Dry (Lawn Care and Painting) – Five Star Painting Game, Set, Match (Sports Bars) – Twin Peaks After the Storm (Disaster Restoration) – Paul Davis Restoration Window Shopping (Retail) – uBreakiFix Sweat It Out (Boutique Fitness) – CycleBar Help Wanted (Employment and Staffing) – PrideStaff Bring it Home (Delivery and Takeout Pizza) – Toppers Methodology for the Franchise Times ‘Zor Awards So, what does it mean for a franchise to be named the “best” in its category by the Franchise Times? In How We Chose the ‘Zor Awards, the publication breaks down its selection process: Identifying Candidates for Inclusion – In order to be considered, a franchise must have fallen into one of the 10 categories listed above, and it must have been listed in the Franchise Times’ “Top 200+” database. The Franchise Times, “further narrowed the list by analyzing the quality of information in each brand’s Item 19 [disclosures] or other key financial data, and also focusing on brands that are currently expanding inside the United States.” Financial Metrics Focused […]

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Do You Really Need a Franchise Business Review?

Jun 19, 2020 - Blog by |

If you are serious about buying a franchise, you are most likely aware of the recommendation that you hire a lawyer to perform a franchise business review. But, with all of the up-front costs you will need to incur already, and since you are prepared to move forward even though the opportunity has its risks, do you really need to pay for a review? Of course, you know our answer already. With more than 30 years of experience in franchising, we have represented thousands of new and existing franchisees, and we have seen far too many franchisees struggle and lose their businesses simply because they failed to take the necessary precautions during the buying process. With this in mind, here are our top four reasons why we believe all prospective franchisees need franchise business reviews. 4 Reasons Why All Prospective Franchisees Need Franchise Business Reviews 1. Buying a Franchise is a Major, Long-Term Investment You have heard this before too, but it bears repeating: Buying a franchise is a major, long-term investment that could have significant implications for your family’s finances. If you decide to move forward, your decision needs to be based on the advice of experienced professionals who understand what you are getting yourself into. 2. The Franchisor is Putting Its Best Foot Forward During the buying process, the franchisor is giving you its sales pitch. If you are a strong candidate, it wants you to buy a franchise because it knows that (i) you have a reasonable […]

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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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