After starting your franchise, problems can arise at any point that can complicate daily operations, hinder sales performance, or threaten to close your business. Planning ahead can help you prepare for eventual issues, but you may need to turn to an experienced business and contract litigation lawyer with experience in franchise litigation to keep your company running, tackle any challenges, and help your business succeed.
Some legal issues can be taken care of quickly and simply through a phone call or letter from your attorney. Other issues may require litigation to resolve a dispute. Some common legal issues that come up in operating a franchise include:
- Franchisor disputes,
- Supplier and vendor problems,
- Employee problems,
- Market changes,
- State and local regulatory changes,
- Tax issues,
- Commercial lease disputes,
- Competitors who engage in unfair business practices,
- Premises liability claims,
- Denied franchise renewal,
- Change in the franchise agreement, or
- 93A Demand Letter Complaints.
Disputes Between Franchisees and Franchisors
Franchisees and franchisors can have a tricky business relationship. Each party has to rely on the other in order to stay in business. This can take some sacrifice and compromise from both parties. However, when the parties have a fundamental disagreement on the contract terms, agreement modifications, or one party is not performing as required by the contract, it may require litigation to settle the dispute. Some areas of franchisee/franchisor disputes may include:
- Lack of business and marketing support,
- Misrepresentations in the Franchise Disclosure Document (FDD),
- Increased requirements and costs on franchisees,
- Exclusive territory violations,
- Non-compete clause violations,
- Intellectual property violations,
- Non-renewal of the franchise agreement,
- Changes in licensing costs, and
- Product sourcing problems.
Most franchise agreements provide for a dispute resolution process. This may include the choice of law and venue and often involve a mediation or arbitration clause. In many cases, arbitration or mediation can be beneficial to both parties by reducing the cost of litigation, allowing for a quicker resolution, and keeping the agreement private.
However, mediation or arbitration may not be appropriate when there are other parties who were not part of the franchise agreement. The arbitration may also not be the best option for emergency injunctions, or where the dispute involves a larger group of plaintiffs, such as a class action. Talk to your franchise attorney about your options for resolving a dispute with the franchise company.
Contracts and Agreement Modifications and Changes
One cause for a change in the relationship between the franchisee and franchisor involves changes to the franchise agreement. Upon renewal of the contract, the franchisor may have increased fees, reduced exclusivity zones, and require more capital improvements by the franchisee. These changes can impact the franchisee's profit and seemingly give nothing back to the franchisee.
If the franchisee does not accept the modifications, they risk losing their investment in the franchise through the non-renewal of the agreement. However, instead of reading the modifications to the contract as an all-or-nothing option, talk to your franchise attorney about negotiating the terms of the contract.
Even when the renewal notice does not require any significant changes to the agreement, the franchisee may need some modifications in order to keep the business running. A change in the market, increased competition, or even higher real estate values may hinder the franchisee's ability to operate in their existing market. The franchise may be open to modifying the terms of the agreement where it would allow for the continued operation of the business to the benefit of both parties.
Outside Challenges to Running a Franchise
Not all disputes and challenges for a franchise involves the franchisor. Like any business, the business owner has to operate in a world with a volatile market, governmental regulatory changes, and the threat of litigation. Some of these challenges can be unpredictable, but many of these problems can be avoided or have the risk of harm reduced through planning and contract negotiation.
Most businesses need a team of employees to carry out daily operations. As with any business, employees and employment law issues can represent a great number of potential legal problems. Even when the owner is not individually responsible for these problems, the employer may be vicariously liable for an employee's mistakes. Employment challenges for your business may include:
- Employment discrimination,
- Workers' compensation claims,
- Sexual harassment,
- Independent contractor disputes,
- Wage and hour claims, and
- Labor law violations.
Vendor and supplier problems can threaten the business operations for your franchise. Lack of product, delay in product deliveries, or delivering non-conforming goods can be a major problem for businesses. Having your attorney review any vendor and supplier contracts can highlight potential problems, provide for relief in the event of performance violations, and help the business owner plan for back-up relief whenever a vendor dispute arises.
Zoning and Local Regulations
Zoning and local regulations are generally an issue only when getting your business started. However, they can become a problem again if you plan on expanding or moving your operations. Dealing with local government agencies and workers can be frustrating. It often helps to have a local attorney who is familiar with these agencies and understands how to fast-track approvals to reduce the delays caused by zoning roadblocks.
Commercial Real Estate Disputes
Operating your franchise in a commercial space can lead to a number of areas of dispute, including rent increases, landlord responsibilities, common area maintenance, and lease renewals or refusals. The first step to protecting your interests involves a full commercial lease review and due diligence. When entering into a commercial lease, you should have the agreement reviewed by an experienced real estate litigation lawyer.
Unpaid bills can reduce the licensee's liquidity, putting the business and the franchise agreement at risk. Your franchise attorney understands how important it is for the business to get paid and be paid on time. Your franchise attorney can help you plan for non-payment or late payment and help your business collect any money owed through the collections process.
Franchise Litigation Attorneys at the Katz Law Group Serve Massachusetts
From negotiating and preparing franchise agreements to litigating franchise disputes, with our extensive business litigation experience, we understand how to help franchisees get started and move forward with the best chance for success. The Katz Law Group has over 35 years of experience with business law, serving franchise operations in Worcester, Marlborough, Framingham, and across New England and Massachusetts. Call their law office at (508) 480-8202 or contact them online.