As a franchisee, your territory is among the most valuable aspects of your franchise. As a result, protecting your territory is extremely important. If your franchisor or another franchisee is encroaching on your protected or exclusive territory, you should consult with an experienced franchise attorney about your legal options promptly.
While not all franchisors grant territory rights to their franchisees, many do. If your franchisor is among those that offer protected or exclusive territories, protecting your territory will be key to protecting your investment. So, what should you do if your franchisor or another franchisee is encroaching?
In this scenario, prompt action is key. The longer the encroachment continues, the larger your losses could grow—and the more difficult it could become to enforce your contractual rights. That said, what you should do depends on the specific circumstances.
What Type of Territorial Rights Do You Have?
When dealing with franchise encroachment, it is critical to ensure that you have an accurate understanding of your territorial rights. While many franchisors advertise that they offer “exclusive” territories, their franchisees’ rights are often subject to various carveouts and exemptions. Similarly, receiving a “protected” territory can mean different things in different franchise systems.
While you could very well be dealing with encroachment, you need to be sure before you start making allegations. As we said above, however, acting promptly is important in this scenario as well. To ensure you make informed, timely decisions with your long-term best interests in mind, you should have the pertinent provisions of your franchise agreement reviewed by an experienced franchise attorney as soon as possible.
Proving that Your Franchisor or Another Franchisee is Encroaching on Your Territory
If you have grounds to take legal action for franchise encroachment, you need to be able to prove it. Even if the encroachment is obvious, it will still be important to document the encroachment for purposes of pursuing formal legal action if necessary. Depending on the nature of the encroachment, this could include taking steps such as:
- Saving screenshots of web pages or social media posts
- Saving mailed advertisements
- Taking photos of billboards or other advertisements in your territory
- Taking photos of an encroaching physical location or vehicles in your territory
- Documenting any decrease in sales that corresponds to the encroaching activity
Your franchise attorney will be able to advise you based on the specific circumstances at hand. If warranted, your attorney can also hire an investigator to gather additional evidence in support of your encroachment claim. Once you have confirmed that your franchisor or another franchisee is encroaching and you have the documentation to prove it, then you can start thinking about your next steps.
Dealing with Territorial Encroachment as a Franchisee
Dealing with franchisor encroachment and dealing with franchisee encroachment are two very different scenarios. If another franchisee is encroaching on your protected or exclusive territory, it will also be important to try to discern whether your franchisor has condoned the encroachment—whether intentionally or inadvertently. Here are some key considerations:
- Dealing with Franchisor Encroachment – If your franchisor is encroaching on your territory, attempting to engage with your franchisor may be a good first step—though it may also make sense to proceed directly to pursuing mediation or arbitration in this scenario. Your franchisor should be aware of your territorial rights; and, as a result, if your franchisor is encroaching on your territory, it should generally be aware that it is violating the terms of your franchise agreement.
- Dealing with Franchisee Encroachment – Franchisee encroachment is more likely to be a mistake—although intentional encroachment is a possibility here as well. If your franchisor has granted overlapping territories (whether intentionally or inadvertently), this requires prompt action. If another franchisee has unilaterally encroached on your territory, this requires prompt action as well, and whether you should approach the franchisee directly or attempt to work out a resolution through your franchisor will depend on the circumstances involved.
Regardless of the circumstances, you do not want to wait longer than necessary to seek a resolution. As mentioned above, waiting can have financial and legal implications. If you are dealing with your franchisor, you will most likely need to pursue mediation or arbitration as required by the terms of your franchise agreement. If you are dealing with another franchisee, you may be able to go directly to court, but it will be important to make an informed decision about how best to proceed based on the specifics of the situation you are facing.
FAQs: Protecting Your Franchise Territory Against Encroachment
What should I do if my franchisor or another franchisee is encroaching on my territory?
If you are dealing with encroachment as a franchisee, you should consult with an experienced franchise attorney promptly about your legal options. In some cases, getting an attorney involved can help facilitate an efficient and favorable resolution. If an efficient and favorable resolution is not in the cards, you will need an experienced attorney who can take appropriate legal action on your behalf.
Do I need to file for mediation or arbitration if my franchisor is encroaching?
Encroachment claims are often subject to franchise agreements’ mandatory mediation and arbitration provisions. However, franchisees may be able to pursue injunctive relief in court in some cases. In some cases, an amicable resolution may be an option as well. An experienced franchise attorney can help you decide what to do based on the specific circumstances at hand.
What are the remedies for franchise encroachment?
The remedies for franchise encroachment generally include injunctive relief (i.e., an order barring encroachment) and monetary damages. If you are dealing with encroachment, your attorney can help you decide which type of remedy (or remedies) to pursue.
Discuss Your Legal Options with National Franchise Attorney Jeffrey M. Goldstein
If you are dealing with franchise encroachment, national franchise attorney Jeffrey M. Goldstein can help. Call 202-293-3947 or contact us online to arrange a free consultation today.
