Franchise Articles

The Washington Supreme Court has recently ruled Franchisors cannot exceed ‘fair and reasonable prices’ in selling products and services to their franchisees. Specifically, the Court held that under that state’s Franchise Relationship Act that it is an unfair or deceptive act or practice for any person to “sell, rent, or offer to sell to a franchisee any product or service for more than a fair and reasonable price.”  The Washington Supreme Court proceeded to define prolific components of a definition of “fair and reasonable price” for such products. The Washington Court explained: The plain language and the legislative history of the FIPA make clear that a broad understanding of the market and market forces must inform a fact finder determining whether prices are fair and reasonable under the FIPA. A fact finder must take into consideration market forces writ broadly. This includes what the district court relied on—the price at which the franchisor acquired the products or services—but reaches beyond. The prices of competitor franchisors should be taken into account, including whether the prices of all franchisors are the same. So, too, should the statements of profit margin made by the franchisor. Other relevant factors include the franchisor’s charges to other franchisees for the same or similar products or services; what other similarly situated franchisors charge similarly situated franchisees for the same or similar products or services; business and industry practices; the price the franchisor pays for the products or services; and the price at which the franchisee could obtain […]

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Antitrust is among the most-confusing areas of the law, even for attorneys. But, as a franchisee, understanding the antitrust principles that apply to the franchise relationship is important, as franchisor antitrust violations are common, and they can have severe negative ramifications for individual franchisees. So, as a franchisee, when is it time to speak with an antitrust attorney? Here are five of the most-common antitrust violations in franchising: Common Antitrust Violation #1: Unlawful Customer Restrictions Protected and “exclusive” territories are common in franchising; and, while dividing geographic territories amongst franchisees is generally permissible, there are other types of customer restrictions that can violate federal and state antitrust laws. When examining customer restrictions for potential antitrust issues, the franchisor’s intent and the practical effect of a restriction are both important factors. With regard to franchisor intent, if the purpose of a restriction is to limit customers’ options (i.e. by prohibiting franchisees from serving customers outside of their respective territories), then this is more likely to tend toward an antitrust violation. For example, if a franchisor wants to prevent franchisees from competing with one another on price (in order to drive up royalties and marketing fund contributions), this could be an unlawful practice. On the other hand, if a franchisor simply restricts franchisees from actively marketing outside of their respective territories (but does not restrict the customers they can serve), this is an industry-standard practice that generally does not raise antitrust implications. This is a complicated and nuanced area, and franchisees who […]

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Not only does buying a franchise involve a making sizable financial investment, but it also involves entering into a long-term legal relationship that provides very limited opportunities to protect your investment if something goes wrong. As a result, in addition to working with your financial advisor, it is also important to work with an attorney who can help you assess the legal risks involved and, potentially, negotiate more-favorable terms into your franchise agreement. These legal services are commonly referred to as a franchise business review. As with all aspects of buying a franchise, when choosing a lawyer to perform your franchise business review, you need to make an informed decision. A lawyer who doesn’t focus his or her practice on franchise law won’t be able to provide you with the insights you need, although he or she may be able to provide general legal advice about the risks entailed by your franchise agreement. Likewise, a lawyer who primarily represents franchisors will lack the perspective needed to view the issues from your point of view and might even have interests that are in conflict with yours. So, what is the best option? When you need a franchise business review, you need a franchise lawyer who focuses exclusively on representing prospective and current franchisees. What Factors Should You Consider When Choosing a Lawyer for Your Franchise Business Review? While there aren’t many franchise lawyers in this category, there are more than one. So, what factors should you consider when choosing a lawyer […]

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The franchise industry is constantly evolving. Statistics often change dramatically from year to year, with economic conditions heavily influencing the growth, retraction and overall stability of franchise systems in virtually all sectors. Franchisedirect.com recently published an infographic that provides an interesting overview of franchising’s history and some notable statistics on the industry. Here are some of the numbers that stood out to us the most: An Average of 300 Companies Start Franchising Each Year According to Franchisedirect.com, “[a]n average of 300 new brands start franchising each year.” This means that on more days than not there is a new opportunity for prospective franchisees to explore. Franchising saw its first boom in the late 1950s, and approximately 60 years later the industry is – at least by some standards – stronger than ever. There are More than 750,000 Active Franchised Outlets The infographic indicates that there were expected to be more than 750,000 franchised outlets by the end of 2018. It also notes that one in seven businesses is a franchise. Of these franchises, slightly over half (53 percent) are owned by multi-unit franchisees. Just under half of all franchisees own a single outlet. More Than 80 Percent of Franchises are Local or Regional Brands 50 percent of franchises are classified as “local” brands, while 34 percent are classified as “regional” brands. This means that just 16 percent are the national and global brands that most people picture when they hear the word, “franchise.” While this statistic may be surprising to […]

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If you are like most dissatisfied franchisees, you want to get out of the system, and you are prepared to do so by all legal means available. However, you also probably know that your rights under your franchise agreement are limited. In fact, if you have reviewed the “Termination” section of your agreement, you may have noticed that you don’t actually have any termination rights at all (in contrast to your franchisor, which probably has multiple options for forcing you out of the franchise system). Fortunately, an antitrust attorney who is familiar with the franchise relationship may be able to help. What is Antitrust Law? Antitrust law prohibits private parties (i.e. franchisors, vendors and other third parties) from entering into agreements that constitute unreasonable restraints on trade. Antitrust law has its origins in consumer protection, with the Sherman Antitrust Act of 1890 (the “Sherman Act”) outlawing business arrangements (which, at the time, used a specific form of trust) that created monopolies and restricted market competition. The Sherman Act remains relevant today, and various other laws at the state and federal levels prevent anti-competitive conduct and establish other antitrust protections as well. How is Antitrust Law Relevant to Franchisees? So, how is antitrust law relevant to franchisees? In the franchise context, the Sherman Act and other state and federal antitrust laws prohibit franchisors from entering into contracts that either (i) force franchisees to pay more for products and services than market forces would dictate, or (ii) restrict franchisees’ ability to offer […]

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From Instagram to Google Maps, in today’s world, getting found and interacting with customers online are among the most-effective ways to build a successful business. The International Franchise Association (IFA) recently published the results of a poll in which franchisees were asked to list their most-effective channels for generating customer leads, and four of the top six involved digital marketing. Social media came in second (behind “referrals”) at 55.26 percent, followed by search engine optimization (SEO), pay-per-click advertising and content marketing. Radio and television tied for second-to-last (before billboards) at just 2.63 percent. But, as a franchisee, your ability to market online is limited. As with all other aspects of your business, you can only say and do what is permitted by the terms of your franchise agreement and the franchisor’s operations manual. If you build an online presence in a non-compliant manner, your franchisor may force you to make changes (which could confuse your followers), it may force you to transfer your accounts and it may even declare you in default under your franchise agreement. What Can (and Can’t) Franchisees Do Online? So, as a franchisee, how can you market your business online? While individual franchisors’ rules and restrictions vary, some examples of potential restrictions include: 1. Approval of Advertising Materials Traditionally, franchisors have typically required franchisees to obtain pre-approval of any advertising materials they intend to use. But, as a franchisee, you cannot wait days (or weeks) to find out if you have permission to post a photo […]

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Recently, Forbes.com published an article titled, The Franchise Dating Game: Finding Your Perfect Franchise Match. The article analogizes the process of choosing a franchise to that of finding “your perfect life partner,” and it discusses six steps that prospective franchisees can take to narrow down their options until they find the “right” franchise opportunity. We have discussed these steps before in various articles covering the topic of due diligence. But, it is interesting to examine them in the “dating game” context; and, as due diligence is one of the most-important steps involved in buying a franchise, we thought we would share our thoughts on these tips for finding “The One”: 1. “Know Your Personal Interests, Strengths and Goals” This is a critical factor in choosing a franchise opportunity. Even if a franchise appears to have significant profit potential generally, if you are not interested in the nature of the business, and if you are not passionate about the product or service you would have to sell, then it is probably not the franchise for you. 2. “Know Your Figures” Different types of franchises require different levels of financial investment; and, even among competing franchised brands, some franchisors demand higher initial franchise fees, royalties, and marketing fund contributions than others. While these higher costs may (or may not) be justified, overextending yourself financially can limit your ability to survive the initial months of operation when your franchise isn’t generating a profit. 3. “Get Online” These days, there is no shortage of […]

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In July, the franchisor of the Jamba Juice franchise system (which offers “smoothies, juices and bowls”) announced that the system would be dropping “Juice” from its name and re-branding simply as “Jamba.” As reported by Blue MauMau, “[t]he change in brand comes as a rising tide of press from Time magazine to the Washington Post have reported that drinking juice can be as unhealthy as consuming soda.” Interestingly, however, juice will remain one of the brand’s core offerings, even though the franchisor’s president touted the re-branding as an effort, “to meet our guests’ ever-changing definition of wellness.” Admittedly, the branding exercise does come with some menu changes. However, according to Blue MauMau, it also comes with a requirement for franchisees systemwide to purchase new signage and packaging for their products (and of course menus). Franchisees will also be required to “invest” in a large-scale store remodel and begin allowing customers to order ahead and have their orders delivered by Postmates and Uber Eats. All of this comes as systemwide sales are down year-over-year and as the number of franchisees in the system is dropping. Dealing with (and Paying For) Mandatory Updates as a Franchisee As is typically the case, this appears to be a top-down overhaul. Franchisors routinely require their franchisees to adopt (and pay for) updates to their outlets—with varying degrees of investment and success. Regardless of whether dropping the word “Juice” from the brand will draw in more health-conscious customers, the only thing that is certain for the […]

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If you are a veteran and you are thinking about buying a franchise, you are not alone. Thousands of franchises are owned by veterans, and the U.S. Department of Veterans Affairs (VA) promotes franchise ownership as an alternative for former military servicemembers and officers who are thinking about going into business for themselves. According to the International Franchise Association (IFA): “Even though veterans account for about 7% of the population, 14% of franchisees are vets . . . and 65% of franchisors have indicated that their rate of hiring veterans has increased in recent years.” Of course, buying a franchise comes with financial risk. To help reduce the cost of ownership, many franchisors and other businesses and organizations offer benefits to veterans. Here is a list of some of the benefits that are available, as well as a list of resources for veterans who are thinking about buying a franchise: The International Franchise Association’s (IFA) VetFran Program Under the IFA’s VetFran program, participating franchisors offer discounts and other financial incentives to veterans who have been honorably discharged from the U.S. armed forces. Many suppliers offer waived or reduced fees to veterans through the program as well. Currently, more than 600 franchisors participate in the VetFran program. The IFA rates participating franchisors with up to five-star ratings, with higher ratings reflecting the IFA’s view of the franchisor’s commitment to the ideals of VetFran. Of course, in addition to reviewing these ratings, veterans who are considering franchise opportunities under VetFran should conduct […]

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According to news reports, over the past 10 months Dunkin’ Donuts Franchising LLC has sued more than 30 of its franchisees alleging that they have hired undocumented workers in violation of federal law and the terms of their franchise agreements. As a remedy, the franchisor is not seeking to compel proof that the franchisees’ employees are lawfully in the United States or that they only employ documented workers, but instead it is seeking to terminate their franchises. At least one franchisee has countersued alleging that it was not afforded a sufficient opportunity to cure and that Dunkin’ is attempting to resell its franchise without any payment of compensation. As summarized by The New Food Economy: “Since September 2018, the company has sought to close almost 30 East Coast restaurants, bringing their owners to court in a recognizable pattern. In at least three instances, Dunkin’ reviewed store records, found franchisees hadn’t verified the employment status of their workers, moved to terminate the franchise agreement, and then took the store owners to court to enforce it. . . . Dunkin’ has a reputation for taking franchisees to court who don’t comply. During an 18-month period in 2006 and 2007, for example, the company filed over 100 lawsuits, the vast majority of which were brought against store owners . . . .” The current spate of lawsuits is interesting for a number of reasons, not the least of which is that they appear to be one of the first efforts in franchising to […]

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