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As a franchisee, you will likely reach a point at which you are considering legal action against your franchisor. If you are fed up and ready to go to court, here’s what you need to know: 5 Preliminary Considerations for Pursuing a Claim Against Your Franchisor 5. Do You Have a Claim for Breach? In order to file a claim in arbitration or litigation, you need to have more than a general grievance. You need to have a legal cause of action, and this could be a breach of your franchise agreement. Although franchisors’ contractual obligations are usually limited, franchisees will usually still have several potential grounds to sue their franchisors for breach of contract. Some examples of common breach allegations in franchisee-initiated litigation include: Imposition of improper obligations or restrictions Failure to enforce territorial restrictions on other franchisees (territory encroachment) Breach of representations and warranties Improper refusal to renew or approve a transfer Improper use of advertising fund contributions 4. Do You Have a Statutory Cause of Action? If you don’t have a cause of action for breach, do you have a claim based on state or federal law. Franchise litigation often involves statutory claims such as: Antitrust violations State franchise law violations Discriminatory franchise practices Franchisor fraud Wrongful termination 3. What Does Your Franchise Agreement Say about Dispute Resolution? If you have a claim, your next step is to understand the implications of your franchise agreement’s dispute resolution clause. Does your agreement require mediation or arbitration; and, if […]

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If you flip through a typical Franchise Disclosure Document (FDD), most of what you will find is page after page of small, dense text that was clearly written by an attorney. However, things change (briefly) when you get to Item 20. In Item 20, franchisors are required to produce a series of five standardized tables that provide historical information, current information and future projections about the size and growth of the franchise system. Carefully reviewing the data in Item 20 can tell you a lot about a franchise system. Has it grown consistently over the past three years? Have franchisees been leaving the system on a regular basis? Is the franchisor focused on expanding through franchising or company-owned outlets? You can gain insight into these issues and more through Item 20 of the FDD. Breaking Down Item 20 of the Franchise Disclosure Document (FDD) 1. Systemwide Outlet Summary The first table in Item 20 is labeled, “Systemwide Outlet Summary,” and it simply compiles data from tables three and four.  Here you will find: The total size of the franchise system (including franchised and company-owned outlets) The net change in franchised outlets for each of the past three years The net change in company-owned outlets for each of the past three years All of this information is important for assessing the health of the franchise system as a whole, and the later tables provide information that is specific to your state. 2. Transfers of Outlets from Franchisees to New Owners (other […]

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As a franchisee, finding success means meeting customers’ demands while working within the confines of a franchisor’s business system. As market conditions change and new technologies emerge, franchisees can struggle when their franchisors fail to keep pace with the times, and they can incur unnecessary financial burdens when their franchisors choose to follow the wrong path. The following are five trends that are likely to impact franchisees – for better or for worse – during 2018. 5 National Trends (With Legal Implications) Likely to Impact Franchisees in 2018 1. Proprietary Apps and Online Ordering Certain franchised brands have emerged as leaders in the trend toward proprietary apps and online ordering. Several quick service and casual dining restaurants now offer tableside tablets for ordering food, and restaurants are increasingly encouraging customers to order online for instore pickup. When used effectively, these tools can streamline the customer experience and make it easier for franchisees’ employees to keep pace during periods of high demand. However, without thorough testing and a clear plan for implementation, they can confuse and frustrate customers, and they may be destined to become relics of the past. 2. Facial Recognition and Alternative Payment Options While alternative payment options – such as Apple Pay and PayPal – have been making online shopping easier for years, many brick-and-mortar concepts are just starting to incorporate these options into their point-of-sale systems. If your franchisor wants to offer alternative payment options (including use of facial recognition) in test locations or across the entire […]

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As a prospective franchisee, you have a handful of options when it comes to ways to finance your franchise. One of these options is a bank loan guaranteed by the U.S. Small Business Administration (SBA), which is commonly referred to as an “SBA loan.” While obtaining an SBA loan can help mitigate your financial risk as a franchisee, before you apply for funding, it is important to understand the terms, conditions and residual risks that these loans entail. If you are considering an SBA loan to finance your franchise, here is a brief introduction to what you need to know: 5 Important Facts about SBA Loans for Franchisees 1. An SBA Loan is Not Actually a Loan from the SBA. As we mentioned above, an SBA loan is not actually a loan from the U.S. Small Business Administration, but rather a loan from a private bank that works with the SBA. When you obtain an SBA loan, the SBA guarantees a portion of the loan, which means that the SBA will pay the bank if you are unable to do so. 2. The SBA Does Not Fully-Guarantee Franchise Loans. While the SBA will guarantee a significant portion of your loan, it will not guarantee your entirely. Depending on the amount you borrow, you may still need to personally guarantee 15 to 25 percent of the loan for your franchise. You will also need to make a down payment, and you may need to pledge assets as collateral. 3. In Order […]

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When you buy a franchise, your decision to move forward is largely based upon information provided by the franchisor. From marketing materials and sales pitches to the Franchise Disclosure Document (FDD) and franchise agreement, while you may receive information in multiple formats, all of these formats trace back to the same single source. Hopefully, the information you receive is up-to-date and not misleading. Hopefully, your franchisor is confident in its offering and wants you to make as informed of a decision as possible. Unfortunately, this is not always the case. As a result, it is important for both prospective and current franchisees to seek to verify their franchisors’ representations through other sources, whether that means going online, sending an email or picking up the phone. Where to Find Information About Franchisors and Franchise Opportunities If you need to find information about your franchisor or a franchise you are considering purchasing, these sources are a good place to start: 1. Current Franchisees Franchisors are required to disclose their current franchisees’ addresses and phone numbers in Item 20 of the FDD. If you have questions, there is a good chance that other franchisees in the system have either had the same question before or turned to other franchisees for help in other circumstances. As a result, you will often find that existing franchisees are more than happy to share what they know. 2. Former Franchisees The mandatory disclosures in Item 20 also include addresses and telephone numbers for franchisees who have left […]

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Item 19 of the Franchise Disclosure Document (FDD) is titled, “Financial Performance Representations.” In this Item, franchisors have the option to provide information, “about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document.” Providing a financial performance representation (FPR) in Item 19 is optional. If a franchisor chooses not to provide an FPR, it must include a “negative disclosure” which states: “We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting [name, address, and telephone number], the Federal Trade Commission, and the appropriate state regulatory agencies.” Many franchisors choose to provide this negative disclosure. While financial performance representations are of obvious interest to prospective franchisees, improperly-prepared FPRs can expose franchisors to litigation. As a result, rather than take the time to prepare an accurate and substantiated FPR, franchise executives (and their lawyers) often opt for the safer and simpler route. But, let’s suppose that you have received an FDD that includes an FPR. What […]

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With very few attorneys focusing their practice on franchise law, chances are that there is not an experienced franchise lawyer in your local area. So, if you need an attorney to review a Franchise Disclosure Document (FDD) and franchise agreement or represent you in a franchise-related dispute, should you choose a local business lawyer, or is it better to hire an attorney who is farther away but who focuses his or her practice on franchise-related matters? While seeking legal representation locally will be your best option in many cases, hiring an attorney for franchise-related legal issues is a notable exception to this general rule. The reason for this is simple: The world of franchising is unique, and understanding the legal issues – as well as their real-world implications – requires extensive experience dealing exclusively with franchise law matters. An attorney who does not practice franchise law may be able to advise you regarding the risks of certain contract provisions and your options regarding arbitration or litigation generally, but he or she will not be able to put these issues into context, and he or she is unlikely to be familiar with the complex federal regulations and the web of state-specific franchise laws that apply. 5 Reasons Why Prospective and Active Franchisees Should Hire an Experienced Franchise Lawyer When it comes to understanding the legal implications of being a franchisee, there are countless examples of issues that require thorough knowledge of franchise-specific legal issues. Some examples include: Comparing the Benefits (and […]

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Own ’em all or franchise ’em out? Or, do some of each, and dual-distribute? According to famous Economist Ronald Coase, firms exist to minimize transaction costs. On its face, this theory, even though it is from 1937, generally explains whether particular brands or firms decide to operate as a chain or franchise. In essence, the fewer transaction costs the more likely a firm will contract for distribution services with third parties in the market (thru franchise contracts, for instance) versus doing the distribution functions in-house. Coase’s theory can also explain to some extent the proportion of company-owned stores in any given system that has chosen to offer franchises. However, the empirical evidence regarding such franchise integration decisions does not always dovetail with the theory. Indeed, a recent debate between two CEOs of two smaller pizza chains shows that decisions regarding whether to franchise, or the degree of dual-distribution in a particular franchise system, can derive from individual personality predisposition, and not explicit economic theory. Blaze, &Pizza CEO’s Square Off in Franchise Debate. For instance, Mizes, who explained that he wanted “to expand as fast as possible”, grew his company through franchising. In contrast, Lastoria, who felt that “the goal was to embellish the uniqueness of each restaurant” developed his business through company-owned stores. Interestingly, both Mizes and Lastoria felt that “it would be difficult” to ‘have it both ways” by employing both strategies simultaneously.

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We are pleased to announce that firm founder Jeffrey M. Goldstein has recently been selected for exclusive membership in Leaders in Law. Mr. Goldstein has been selected as the exclusive member for the USA – New York region for 2017-2018. He is currently one of only for franchise lawyers selected for inclusion worldwide, and he is currently the only franchise lawyer selected in the United States. About Leaders in Law Leaders in Law provides business owners with a streamlined way to find attorneys in their areas of need. As stated on the organization’s website: “Leaders in Law is the ideal way to find a lawyer anywhere in the world specialising in the area of law with which you need assistance or advice. Very few people have a detailed knowledge of lawyers all around the world, but Leaders in Law has painstakingly put together a database of lawyers in 120 different countries and covering 42 different areas of law. Our selection process is so rigorous you can be assured that you will find a Leader in Law with maximum expertise.” With more than 700 attorneys selected for inclusion worldwide, there are currently just four franchise lawyers who have been recognized as Leaders in Law. Along with Mr. Goldstein in the United States, these prestigiously-selected attorneys are located in France, Kuwait and Azerbaijan. About Jeffrey M. Goldstein Jeffrey M. Goldstein is a globally-recognized franchise lawyer who has spent the last three decades exclusively representing franchisees and dealers. The Goldstein Law Firm is […]

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Earlier this year, Franchise Times reported the results of a study conducted by Franchise Business Review which examined the rising trend of female franchise ownership. The article highlights some interesting statistics, and it shows just how big of a role female franchisees play in current success and the projected future growth of the franchise industry. Here are some of the most noteworthy numbers from the survey: 63,000 According to Franchise Times, female franchisees earn an average income of $63,000 per year. 6,400 Franchise Business Review surveyed 6,400 female franchisees, representing only a portion of the female franchise owners operating today. 85 85 percent of female franchisees said they would recommend their brands to others considering franchise opportunities. 84 84 percent of female franchisees said that they respected their franchisors; however, only 80 percent said that they believed their franchisors acted “with a high level of integrity.” 74 According to Franchise Business Review, 74 percent of female franchisees say they would “do it again” knowing what they now know as a result of their experience in the franchise industry. 60 Sixty percent of female franchisees surveyed had a bachelor’s degree or higher. Seventeen percent held an associate’s degree, and 20 percent reported having only a high school education. 58 Just over half of female franchisees reported that their franchised businesses are meeting their financial expectations. 51 Child services is the only franchise sector in which the majority of franchise owners (51 percent) are women. Travel and hospitality has an even split […]

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