Common Franchise Disputes

The process by which a potential franchisee officially becomes a member of a franchisor’s team is a thorough affair; a comprehensive franchise agreement, which addresses nearly every pertinent issue and contingency, is signed by both parties. Generally, the franchisee knows what he or she is getting into, and there is usually harmony. Because of the unique nature of this commercial relationship, though, there is potential for friction. The succeeding paragraphs detail some common ways that disagreements arise among franchise personnel.

  1. Disputes over non-adherence to franchise agreement. In the majority of cases, disputes between a franchisee and a franchisor occur due to a breach of contract. In the context of franchises, this usually means that one party didn’t fulfill a certain obligation stipulated in the franchise agreement. 

There are many ways that franchisees can breach the franchise agreement. They might fail to institute company-wide changes or participate in marketing promotions. The main thrust of the relationship between the franchisor and franchisee is that the franchisee gives up a significant amount of freedom and internal control in exchange for getting to use an established brand, products, services, and business operations methods. 

  1. Misuse of franchisor’s intellectual property. Perhaps the most important asset for franchisees is the well-established company brand. You can be sure that any large franchise like Subway, The UPS Store, Wendy’s, or Dunkin Donuts has every single piece of intellectual property registered or trademarked. Any franchisees who use their franchisor’s intellectual property for unauthorized use will be sure to receive a cease and desist letter from the corporate office. 
  2. Disagreements over the source of raw materials. Enterprising franchisees may sometimes make suggestions to the franchisor on where to get cheaper raw goods. For example, a franchisee of a McDonald’s location might know of a supplier who charges less expensive rates on chopped onions than the restaurant’s current supplier. Every company is open to the idea of cutting costs where appropriate, but in this case, the Golden Arches insists on consistency and uniformity among its area locations when it comes to onions. The franchisee pushes back, wanting to save money and increase profits for his store. 
  3. Claims by franchisees that franchisors aren’t providing adequate support. Just as franchisees are expected to give up control to the franchisor’s way of doing things, the franchisor is expected to deliver in the way of marketing, training, procedures, and other pillars of institutional support. When a franchisee doesn’t consider that she is getting the support for which she’s paying licensing and royalty fees, expect a dispute to arise. 

Conclusion

There is often a provision in the franchise agreement that lays out how legal disputes are to be settled. For instance, the franchisor might insist that an alternative dispute resolution method be attempted before parties jump to litigation. 

Regardless of the protocol or stage of the dispute you are in, it is a good idea to have a qualified business attorney on hand to help settle the disagreement efficiently. Trembly Law Firm is highly experienced in franchise matters and would be honored to be your counsel. Call us at 305-431-5678 to see how we can provide guidance.

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