Business | Franchise | Employment | Litigation

What is Franchisor Encroachment?

When considering encroachment, it is important to understand what a franchisor’s rights and obligations are under the franchise agreement. The franchise agreement typically sets out the franchisor’s rights and obligations with respect to the use of the premises, the recruitment of employees, and the development of the brand and franchise system. The franchisee generally has the same rights and obligations under a franchise agreement as the franchisor does, with some key exceptions. 

Rights and Obligations

Franchisees must abide by the rules and regulations set out in the franchise agreement when operating their business. Violation of these rules can result in disciplinary action against the franchisee by the franchisor, and in some cases, the termination of the franchisees’ franchise agreement. One of the primary responsibilities of the franchisor is to develop a strong brand that will be attractive to customers. While the franchisor has the right to establish policies and procedures relating to the operation of the business, they must be careful not to interfere with the ability of franchisees to operate their businesses in a way that is consistent with the brand’s image. 

Franchisee Restrictions

It is, however, important for the franchisor to allow franchisees the freedom to develop their own strategies for running their businesses as long as these strategies are consistent with the franchisor’s policies and do not conflict with the goals of the franchise system as a whole. A common area of conflict involving franchises occurs when a franchisor seeks to restrict the methods that can be used by franchisees to attract new customers and retain existing clients. Many successful businesses depend heavily on advertising and marketing in order to generate new revenue and maintain customer loyalty. Some franchisors attempt to impose restrictions on how franchisees can use their marketing and advertising funds in an effort to ensure that their marketing dollars are spent in a manner that is consistent with their brand’s image. 

For example, some franchisors prohibit franchisees from using social media to market their businesses because the platforms are not under their control. However, it may be in the best interests of the franchisor to allow franchisees a certain amount of flexibility with regard to their marketing activities because this gives them an opportunity to get creative and generate innovative ideas that will help boost business at the local level. 

Provision of Resources

One of the keys to a successful franchise system is to ensure that each franchisee has the resources they need to carry out their responsibilities and grow their business. This includes providing them with access to training and marketing materials that will help them promote their brand and attract new customers. It is important that the franchisor strikes a balance between providing the necessary training and support and letting franchisees make decisions for themselves whenever possible. By allowing the franchisees to run their own businesses in a free-range environment, the franchisor is able to ensure that the franchise system remains sustainable and beneficial to all parties involved – not to mention avoiding the risk of encroachment. Although this type of arrangement may increase the risk of conflict between the franchisor and the franchisees, it is important to recognize the benefits that it can bring to both parties in the long run. As long as proper communication channels have been established, most disagreements can be resolved quickly and with minimal disruption to the overall operation of the franchise system.

At the end of the day, encroachment is heavily dependent on the franchise agreement and the relationship between the franchisor and franchisee. Although these methods can help to avoid accusations of encroachment, conflict is sometimes inevitable. If you’ve run into franchising issues, contact TLF Business Attorneys today at (305) 985-4571 for assistance from a highly qualified Florida firm with years of experience in protecting Florida businesses.

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