Preventing Bad Things From Happening to Good Franchisees

As a franchisee, you may often feel that you are at the mercy of your franchisor, especially if you have chosen to enter into a Franchise system with an industry leader. While I advise you, as a franchisee, to recognize your limited bargaining power, I also urge you to recognize that you are equipped with certain tools that can help to offset that disparity in bargaining power, and otherwise improve profitability and preserve and enhance your franchise relationship. The following are my suggestions to you for preventing the likelihood of bad things happening to good franchisees.

1. When entering into a franchise relationship, do not merely rely on the franchisor’s statement that a franchise agreement is “nonnegotiable,” and thereby accept unfavorable terms that may be contained in the written agreement. Instead, consult a franchisee attorney and seek to negotiate. While franchisors frequently announce that agreements are “nonnegotiable,” franchisee attorneys are often able to work with franchisors and effectively negotiate terms that are mutually agreeable for both you and your franchisor. Additionally, a franchisee attorney can assist you in understanding your franchise agreement, which is often lengthy, complex, subtle, and one-sided.

2. Be aware of any statements, promises, and representations made by the franchisor that are not contained in the terms of the franchise agreement itself. Take good notes of these communications. Even where a franchise agreement contains an “integration clause”—a clause indicating that the written document is the “entire agreement” between the parties—the enforceable agreement may be found to include the franchisor’s oral and written communications, as well as conduct outside of the franchise agreement. Note that your failure to maintain proper documentation may enable the franchisor to fail to fulfill its promises.

3. Be mindful of all of the significant substantive and procedural provisions in your franchise agreement, and plan in advance of any business-threatening action by your franchisors. Know how best to deal with unfavorable provisions. With a little preparation, you will know how to respond if, and when, conflicts with your franchisor arise.

4. Recognize that franchisors may impose reasonable performance criteria on their franchisees. Meet all reasonable performance criteria. If, on the other hand, you believe that performance criteria are unreasonable, speak up before you are terminated for failing to meet such criteria, noting why it is you believe the criteria is unreasonable and offering to negotiate other, more reasonable performance criteria instead.

5. If you see a potential termination or other business-threatening act coming, and you are unable to meet the performance criteria imposed by the franchisor, try and negotiate alternative performance criteria. If the franchisor is unwilling to negotiate, see if you can persuade the franchisor to hold off on the conduct in question until its lawfulness is submitted to a decision-maker—e.g., binding arbitration, or, if all else fails, litigation. A franchisee attorney may be valuable to you in this process

6. Remember that apart you are weak, together you are strong. Join your franchisee association and work with other franchisees to get equitable franchise agreements preserved and unreasonable performance criteria modified. Accordingly, work through your associations or advisory councils where you can to make sure that your legitimate concerns about potentially unreasonable conduct by your franchisor are appropriately addressed.

7. Work together with your franchisee associations to obtain or preserve protective legislation. Know your legal rights under applicable state laws, and do what you can to make sure statutory protection applies to all of your relationships. If, and when, disputes arise, remember that particular provisions of your franchise agreement, together with state law, federal law, and the common law may provide you with relief.

8. Treat your franchisor the way you want to be treated. To maximize your likelihood of getting fair treatment, be fair, reasonable, focused, diligent, and honest in all of your dealings with your franchisor, and know that you deserve (or the law will likely provide) the same in return. If you are in a dispute with your franchisor and are finding it difficult to remain civil, have your franchisee attorney be civil for you.

As a franchisee, you must actively preserve and protect your respective rights and responsibilities, whether or not they are concretely defined in your franchise agreement. My eight simple suggestions, which are both practical and beneficial in the franchise context, will assist you in doing so by helping to prevent bad things from happening to good franchisees.

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