Each year, we publish numerous articles designed to help prospective and current franchisees gain insight into the franchise buying and ownership processes. 2018 was no exception. Here are 10 of our top articles from throughout the year: Top 10: Franchise News and Insights from 2018 1. Franchise Industry Statistics: Most-Popular Industries and Locations While buying a franchise requires a careful assessment of your personal skills, finances and interests, analyzing trends can also help you make an informed buying decision. We recently took a look at the most-popular franchise industries and the states with the most (and least) franchised businesses. 2. What Is the Universal Franchisee Bill of Rights? In this post for Blue MauMau, we provided our thoughts on the Universal Franchisee Bill of Rights and discussed some key takeaways for new and exiting franchisees. 3. FDDs, Franchise Agreements and Operations Manuals – What Do Prospective Franchisees Need to Know? There are three main legal documents that govern the franchise relationship: The Franchise Disclosure Document (FDD), the franchise agreement and the Operations Manual. In this article, we provide an introduction to each and discuss some of their key implications for franchisees. 4. What Does it Mean if My Franchise Agreement Requires “Mandatory Arbitration”? While arbitration is supposed to provide a level playing field, the reality is that “mandatory arbitration” clauses often heavily favor the franchisor. We explained why in this article from Summer 2018. 5. What Can You Really Hope to Negotiate in Your Franchise Agreement? When buying a franchise, […]

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All franchise agreements contain conditions of renewal. These are provisions that require the franchisee to satisfy certain requirements in order to extend its franchise rights beyond the end of the initial term. Common renewal conditions include an obligation to cure any outstanding defaults (i.e. pay any past-due advertising fund fees or royalties), an obligation to update to then-current system standards and an obligation to sign the franchisor’s then-current franchise agreement. For many franchisees, this last condition will be the only sticking point. They will be up-to-date on all aspects of their franchise, and they will be a solid profit center for the franchisor. But, in order to renew, they will still be required to sign a new agreement, which could have terms that are substantially different from those that currently govern their franchise. The Risks of Signing Your Franchisor’s “Then-Current” Franchise Agreement Why does this matter? Among other potential concerns, being forced to sign a new franchise agreement could mean: Agreeing to a higher royalty percentage or new royalty terms (i.e. a “fixed” or minimum royalty). Agreeing to a higher advertising fund contribution percentage. Agreeing to new requirements regarding suppliers, system standards and mandatory upgrades. Agreeing to new, less-favorable terms with regard to indemnification and dispute resolution. Agreeing to grant additional termination rights to the franchisor and to face additional obligations in the event of termination. Agreeing to even stricter conditions for subsequent renewals. Losing the benefit of terms that you negotiated in your original franchise agreement. With these potential […]

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Oral promises can be legally enforced, but good luck getting your franchisor to agree to something that it did not put in writing. Unfortunately, from the initial sales process through the waning moments of a franchisor-franchisee relationship, it is not unusual for franchisors and their representatives to say things knowing that they will be difficult (if not impossible) to ever prove in court. With this in mind, as a franchisee, it is important to get into the habit of getting things in writing. From negotiating changes to your franchise agreement (instead of relying on a sales representative who says, “Don’t worry about that, I’ve never seen us actually use that clause against a franchisee.”) to communicating via email when you have issues down the road, documentation can be your best friend. Follow up when you do not get answers, send confirmatory emails (i.e. “To confirm what we just discussed . . .”) and keep copies of everything you get in writing. Litigating Disputes Based on Oral Promises But, let’s suppose you are past the point of no return. Let’s suppose that you bought a franchise based upon oral representations that proved to be false, or that you are now facing potential termination due to your reliance on an oral promise – both of which are common scenarios. What legal options do you have available? 1. Proving the Oral Promise One option is to try to prove the oral promise. While this can be difficult, it is not always impossible. For […]

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Amazon has been taking business away from brick-and-mortar stores for years. Despite promoting the benefits of selling through its marketplace to small businesses, it is clear that Amazon (along with other online shopping platforms that offer fast shipping and easy returns) is increasingly becoming a threat to retail businesses that rely on a steady stream of customers to maintain profitability. But, even for franchisees who do not have to compete with Amazon for customers, there is another potential risk as well—particularly for those located near HQ2 and Amazon’s various shipping and fulfillment centers around the country: the risk of losing out on quality employees. According to a recent article on franchise news website BlueMauMau.org: “Mark Zandi, chief economist of Moody’s Analytics, pointed out in a conference call . . . that Amazon announced it was increasing its entry level wages to $15 per hour, which is more than double the federal minimum wage. ‘It is indicative of how tight this labor market is,’ said Zandi. “He anticipates that this will put increasing pressure on employers that employ lower skilled workers to also raise their wages. ‘I fully anticipate wage growth accelerating as we move to 2019.’” As Amazon and other companies start offering higher wages even at entry-level positions, franchisees who find themselves struggling to make payroll may face even greater struggles in the near future. Are Franchisees Hiring? Will They Be Hiring in 2019? However, even as wages trend upward (many states have minimum wages increases set to take […]

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The legal standard for determining when an entity may be considered a “joint employer” of another entity’s employees has been in a state of flux since the National Labor Relations Board’s (NLRB) Browning-Ferris ruling in 2015. While the NLRB reversed the Browning-Ferris decision late last year, the uncertainty over the past few years left a host of lingering questions, particularly in the world of franchising. To address these questions, the NLRB has been working on a set of regulations to help clarify when the joint employer standard should be applied. It recently released a first draft of its proposed regulations. The Joint Employer Standard in Franchising The proposed regulations start by defining what constitutes a “joint employer” (a definition that is notably absent from the current regulatory framework). As proposed: “[A]n employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction . . . [and] a putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.” However, with regard to franchising, the NLRB has taken the position that, “[f]ranchisors generally exercise some operational control over their franchisees, which renders the relationship subject to application of the [NLRB’s] joint-employer standard.” Additionally, as noted in a recent article on BlueMauMau.org discussing the draft rulemaking, the […]

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You have decided to buy a franchise. All that is left is to sign the franchise agreement and pay your initial franchise fee, and then you will officially own your own business. So, is it worth it to try to negotiate? Or, is it safe to assume that the franchise agreement is being offered on a “take it or leave it” basis? Unfortunately, over the past several decades, franchisors have honed the art of drafting one-sided franchise agreements. At the same time, franchise salespeople have come up with myriad ways to convince franchise candidates that negotiating is unnecessary. The truth is, if you are thinking about buying a franchise, it is strongly in your best interests to have the franchise agreement reviewed by an attorney, and most quality franchisors will expect you to request certain changes. Requesting Reasonable Modifications to Your Franchise Agreement So, the question then becomes, “What changes can I reasonably expect my franchisor to accept?” While there is no magic formula and nothing is ever guaranteed, some of the franchise agreement provisions that are most likely to be on the table include: 1. Initial Term Whether the initial term of the franchise agreement is too short or too long, this is a provision of the franchise agreement that often merits careful consideration. You want to make sure that you have enough time to recoup your investment, but you also want to avoid being locked in for too long if the business simply isn’t profitable. If you can […]

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When buying a franchise, there are numerous factors that should guide your decision with regard to both (i) the type of franchise you choose, and (ii) where you choose to open for business. Statistics on the top franchised industries and top franchise locations can lean in both directions. On the one hand, it makes sense to choose a popular franchise in a location where people are used to shopping and eating at well-known brands. On the other, if you buy into too much competition in an over-saturated market, you could be setting yourself up for failure. Earlier this year, Franchise Direct published lists of the most-popular franchises and the locations that are most popular for opening a franchise. Neither list includes an explanation of its methodology, so take these for what they are worth. But, the rankings make sense, and even general trends are worth considering when deciding on the franchise opportunity that seems like the best fit for you. Most-Popular Franchised Industries According to Franchise Direct, as of May 2018, the 10 most-popular franchised industries in the United States were as follows: Food Franchises Children’s Franchises Coffee Franchises Home-Based Franchises Automotive Franchises Business Opportunities Vending and ATM Franchises Restaurant Franchises Cleaning Franchises Pet Franchises Notably, there is a bit of ambiguity in Franchise Direct’s list, as the list includes broad categories in addition to niche industries that could fall into one or more categories. For example, while “Children’s Franchises” ranks at number two, Retail Franchises come in just outside […]

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Buying a home services franchise allows you to be your own boss; and, for many first-time franchisees, it means using your home as your “headquarters” and driving to job sites in your local area. For many franchise candidates, it offers the perfect blend of independence and day-to-day interaction. Many home services franchises also offer relatively low barriers to entry (i.e. a modest initial investment), and the time from signing a franchise agreement to opening for business can be relatively short. But, like all franchise opportunities, home services franchises also come with a variety of risks. If you are thinking about getting into the business of remodeling, repairing, upgrading or protecting other people’s homes, here are some key legal considerations to keep in mind: 1. Liability and Auto Insurance If you (or your employees, if any) will be going into other people’s homes and installing new materials, using cleaning solvents or pesticides, or making substantial modifications, the risk of something going wrong is something you need to consider. The best way to mitigate your risk of liability due to a personal injury or property damage claim (aside from conducting thorough due diligence) is to purchase adequate liability insurance. Since you will be driving on a daily basis, you will want to make sure you have adequate insurance coverage as well. Your state’s mandatory minimum coverage requirements may not be enough if you cause a serious accident, and you will likely need to purchase commercial auto insurance rather than a standard personal […]

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Franchisors love rankings. Visit any well-known franchisor’s website, and you are bound to see a laundry list of rankings purporting to provide third-party validation of the franchisor’s superiority in its niche, if not in the franchise industry as a whole. Similarly, a Google search for “franchise rankings” provides links to web pages and articles with titles like: Top 100 Global Franchises 2018 Franchise 500 Ranking Top 100 Franchises – Rankings of Global Franchises 2018 Rankings of the Best Franchises America’s Best and Worst Franchises to Buy Top 50 Franchises in the World Top 100 Franchises of 2018 As a prospective franchisee, how much stock, if any, should you put in a particular opportunity’s ranking as a “top franchise”? Understanding Franchise Rankings When considering what value to place on a ranking, it is always important to consider the source. As a general rule, legitimate media outlets (such as Forbes.com and Entrepreneur.com) will be more reliable than websites that exist solely to sell advertising (often for their own “top-ranked” franchise opportunities). A site that seeks to have some legitimacy behind its rankings should disclose the source of its data and its methodology as well. For example, in compiling its list of “America’s Best and Worst Franchises to Buy,” Forbes.com relied on five years’ worth of statistical data compiled by FRANdata examining system sustainability, system demand, value for investment, franchisor support and franchisor stability. On the other hand, the Forbes.com list also relies on data that are a minimum of two years old, […]

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Although scams exist in virtually all industries, in today’s world, franchising is arguably one of the exceptions. If you understand the basics of the franchise model, and if you do your due diligence before paying an initial franchise fee, the truth of the matter is that you should be able to spot and avoid any scams pretty easily. For this reason, franchise scams have largely gone by the wayside, and those that still exist barely resemble legitimate franchise opportunities. Of course, this does not mean that your success as a franchisee is guaranteed. There is a big difference between a scam and an unprofitable franchise. Franchisees fail, and even entire franchise systems can go off of the rails, but most franchisees who lose their investments will need to sue for reasons other than being sold on a fraudulent scam. Making Informed Decisions as a Prospective Franchisee Buying a franchise is a complex investment, and it needs to be treated accordingly. This starts with understanding franchisors’ disclosure obligations. Under the Federal Trade Commission (FTC) Franchise Rule, all franchisors are required to you with a Franchise Disclosure Document (FDD), “14 calendar-days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the proposed franchise sale.” If you are being asked to sign an agreement or pay money and you have not been provided with an FDD, then you are not being offered a legitimate franchise. But, once again, in today’s world this […]

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