Franchising inherently involves a long-lasting business relationship that can, in some instances, last for decades. However, it is inevitable that, at some point, issues may arise in this relationship. While some of these issues may be resolved quickly and amicably, allowing both parties to continue their business positively, others may necessitate some intervention.
The Franchise Agreement
The franchise agreement is the foundation of the relationship between the franchisor and the franchisee. This agreement is a legally binding document that delineates the rights, responsibilities, and obligations of both parties. Understanding the franchise agreement is vital for effectively managing legal disputes.
In case of a disagreement or dispute, both parties will need to consult the terms outlined in the franchise agreement as an initial step toward resolution. By emphasizing each party’s contractual obligations and responsibilities, a franchisee and franchisor can better understand their respective positions and may be more willing to collaborate to find a solution.
Legal Disputes that Arise Between a Franchisee and a Franchisor
Although legal disputes in franchising can take on many different forms, some of the more common disputes tend to result from the following:
- A Breach of Contract: These disagreements develop when the terms outlined in the franchise agreements are violated.
- Encroachment of Territory: Disputes can arise when a franchisor opens further outlets near an existing franchisee, as it can affect the franchisee’s profitability.
- Not Paying Fees: A conflict can arise regarding issues related to advertising contributions, royalty fees, or other types of financial obligations indicated in the franchise agreement.
- Quality Control: Disputes can develop from perceived failures in maintaining consistent operations and brand reputation standards.
- Intellectual Property Infringement: Conflict can result from the unauthorized use of logos, trademarks, or other intellectual property rights.
- Non-Compete Violations: Disagreements can arise following the termination of the franchise agreement regarding the enforcement of non-compete clauses
What Happens If There Is a Dispute Between a Franchisee and Franchisor?
When dealing with a legal dispute, franchisees and franchisors have specific legal obligations and responsibilities to fulfill. While these obligations will vary depending on the jurisdiction and the specific terms outlined in the franchise agreement, franchisors are typically expected to act in good faith and deal fairly and reasonably with their franchisees when trying to resolve a dispute. For instance, franchisors are responsible for providing franchisees with the appropriate support, training, and guidance as indicated in the franchise agreement. If franchisors fail to meet these obligations, it may lead to legal consequences or damage their reputation within the franchise system.
In comparison, franchisees are required to follow the operational standards and system requirements established by the franchisor. They must also adhere to the terms of the franchise agreement and uphold the brand’s reputation and goodwill. If a franchisee fails to fulfill these responsibilities, the agreement could be terminated, or other legal consequences may develop.
If you are a franchisee dealing with a legal dispute, there are several options for resolving the issue. These include mediation or arbitration or potentially pursuing a lawsuit against the franchisor. However, before pursuing any of these options, consider discussing the situation with a skilled franchise attorney to better understand which may be best for resolving the dispute.
Are You Dealing with a Franchise Dispute? Contact FortmanSpann Today
FortmanSpann is dedicated to advocating for the rights of franchisees, providing clients with high-quality legal representation at reasonable prices. Our experienced franchise legal professionals represent clients across the United States in state and federal courts, as well as in arbitrations and mediations. We have a successful track record in handling cases that other attorneys have declined and are well-equipped to assist franchisees nationwide in various business matters and disputes.
If you are dealing with a franchise dispute, contact FortmanSpann today to learn how our legal team can help.