A franchise agreement can represent a great opportunity and a significant risk for both the franchisor and franchisee. Before getting into a franchise relationship, individuals or businesses should consult with an experienced franchise attorney about how to prepare for any eventualities and plan for the future. If a franchise dispute arises, an experienced franchise lawyer can represent your interests and fight for your financial and reputational interests.
Massachusetts Franchise Lawyer
A franchise is a licensing relationship between the franchisor, who licenses a business package to the franchisee. This generally provides the franchisee will offer products and services under the franchise trade name and business operating system. A franchisee may also receive training and support in business operations, marketing, and development.
Franchises are a popular way for many new business owners to begin operating a business that has already demonstrated success or provides all the tools and materials necessary for the franchisees to get a head start on running a business. However, franchisee and franchisor relationships can sour when the franchisee or franchisor is not meeting expectations. An experienced Massachusetts franchise attorney can help parties in all aspects of franchise business law, including:
- Franchise Document Preparation
- Franchise Document Review
- Franchise Agreement Negotiation
- Franchise Agreement Enforcement
- Terminating Franchise Agreements
- Franchise Renewal and Refusal Disputes
- Transferring Franchises
- Franchise Dispute Litigation
Franchising Documents and Agreements
Franchising agreements and documents generally lay out the rights, obligations, and responsibilities of all parties. In most cases, the franchise agreement is prepared by the franchisor and does not provide for a lot of negotiation. However, franchisees getting into the business should have an attorney fully review these documents so the franchisee understands all the risks involved and the potential areas of dispute. Even if the franchise document is a pre-prepared form, franchisees still have negotiation options before agreeing to the franchise relationship.
Franchise Agreement Enforcement and Breach of Contract
A number of franchise disputes arise from one party not fulfilling their obligations under the franchise agreement. Common areas of a potential breach of the franchise agreement depend on which party is involved.
Franchisee Enforcing the Agreement: When the franchisee is complaining about a breach, it generally involves disputes over:
- Lack of business support provided by the franchisor,
- Lack of marketing support,
- Franchise costs and payments,
- Allowing competitor franchises in the market,
- Problems with the product, or
- Misrepresentation of the product or service.
Franchisor Enforcing the Agreement: When the franchisor has a dispute with the franchisee, it may involve:
- Franchisor not making payments,
- Franchisor suspected of withholding royalties,
- Not following franchise policies,
- Failure to follow location and appearance agreements,
- Opening a competing company, or
- Harms the franchise brand.
Terminating Franchise Agreements
Franchise contracts often provide terms for termination of the franchise agreement. Generally, a termination clause allows either party to terminate the agreement when there has been a material breach and the parties are not able to resolve the dispute.
The franchise agreements should provide for what constitutes a breach of the contract and what the remedies are for a breach. However, there is often a material dispute over whether a party breached its duties under the agreement. This may lead to franchise litigation when the parties cannot come to an agreement.
Even after the franchisor/franchisee relationship has ended, each party may have continuing obligations under the agreement. This generally includes no longer using the franchise trade name, products, or services. These agreements also often include non-compete clauses and non-disclosure agreements (NDA) that prohibit the former franchisee from opening up a similar business in the same area.
Franchise Renewal and Refusal Disputes
After years of growing a franchise operation, franchisees generally expect the renewal to be automatic, assuming there have been no significant disputes. However, a franchisor may suddenly decide not to renew the franchisee's license, leaving the small business owner unable to continue operating their business.
Alternatively, a franchisee may not want to renew a franchise agreement because of changes in the renewal agreement terms. This may include additional requirements and responsibilities of the franchisee, higher royalty percentages, higher licensing fees, reduced support, or providing for a more saturated market.
Franchise renewal and refusal disputes may depend on the franchisee's right to renew and whether the franchise renewal agreement provided for agreeing to materially different terms. Franchise agreements default may be to treat expiration and non-renewal the same as the termination of the agreement. Talk to your franchise attorney about disputes involving renewal or non-renewal.
Transferring a franchise or assignment in franchising is something most parties do not consider when signing a franchise relationship. However, during the course of operating the company, the franchisee may have a financial, business, or family interest in transferring the franchise to another owner.
Franchise Dispute Litigation
After a dispute, breach, or problem renewing a franchise agreement, when the parties cannot come to an agreement, they may have to turn to the courts. One or both parties may file a civil claim for damages or injunctive relief.
Franchise agreements may also have mandatory arbitration clauses that could require the parties to arbitrate any disputes instead of taking the case to court. It may be preferable for one or both parties to go through arbitration instead of litigation. Arbitration can save money, keep settlements confidential, and be resolved more quickly than the civil court system.
Talk to your attorney about whether arbitration might be a good option to resolve your disputes or whether the arbitration agreement is even enforceable.
Experienced New England Franchise Attorney
From negotiating and preparing franchise agreements to litigating franchise disputes, with our extensive business litigation experience, we understand how to handle franchise disputes between franchisors and franchisees. The Katz Law Group, P.C. has more than 35 years of experience with business disputes in Massachusetts and across New England, including franchise litigation.
An experienced Massachusetts and New England franchise lawyer can help negotiate and prepare franchise agreements to reduce the likelihood of future disputes. However, when problems do arise, your lawyer will be able to defend your business and your financial interests through litigation. Contact the Katz Law Group today.