Franchisors in the U.S. have historically enjoyed a relatively high degree of legal runway from which to operate and grow their franchise network. According to Goldstein Law Group, franchises have legal responsibilities and most franchise agreements clearly outline the respective duties of the franchisors and franchisee. Those duties for which the franchisors are responsible are few and normally too ambiguous to enforce. The basis of most franchise agreements includes contractual language stating that “the franchisor doesn’t guarantee the success of the franchisee.” That said, it is less expensive and easier in the long run to work with a lawyer who has a lot of experience in franchise law and compliance. The following issues are just a few that should be discussed with your attorney when pursuing the franchise business model.
Franchisors typically need to assist in locating sites for their franchisee’s stores. They should provide some level of managerial assistance and have a written Operations Manual. Training should also be provided and third party vendor relationships shared with franchisees. The latter is important for the sake of continuity and brand consistency. Also, the more franchisees participating in your approved vendors, the greater your buying power and leverage with your vendors. When franchisees buy outside of your approved vendors, they essentially serve a product that is not “your brand.” Can you imagine being offered a hot dog at McDonalds by some creative franchisee looking for market differentiation?
Another good reason to consult with an experienced franchise attorney is the liability franchisors bare for the conduct of their suppliers If franchisors insist on specific suppliers or vendors, especially if they receive special discounts or kick-backs from the vendor, they open themselves up to liability. If the supplier acts in a destructive or negligent way that negatively impacts the franchisee, franchisors are exposed.
It’s not uncommon in franchising for an owner or group of owners to want to build on a franchise concept on their own. To combat this, a franchise attorney will ensure that franchisors have legal control of the franchised location if and when possible, either “as owners or primary tenants of the premises.” Most franchise agreements include “post-term covenants not to compete” as well. This prohibits the franchisee from operating a similar business at the location where he previously operated the franchise. If you are the “six minute abs” business and your owners want to get into the “five minute abs” game, they will find this to be a challenging enterprise.