Franchising offers entrepreneurs a method of expansion into a chain operation, without the capital requirements necessary for the ownership of an integrated system. GLG provides comprehensive franchise legal services to franchisors and start-up companies looking to expand their businesses.
Our role is to foster the ongoing relationship between franchisors and franchisees after the parties have signed a franchise agreement. We offer guidance with issues such as terminations, renewals and buy-backs.
At GLG, we make sure you are safeguarded in the event that you must terminate a franchise agreement. Termination is one of the most litigated issues under state franchise relationship laws. It must be determined whether the franchisor had “good cause” to terminate a franchise agreement, but the “good cause” standard differs from state to state. For example, where one state refuses a “bad faith” termination, another will not allow an “unjust” one; furthermore, there are states that do not define a specific permissible standard, and instead default to a “good faith” standard via common law.
Another significant issue addressed in state relationship laws concerns franchisee transfers. Where some states restrain the franchisor’s ability to prolong the transfer process, others do not set any limitation on time. This is just one example of a key inconsistency between states’ franchise laws; with the many different standards between states’ statutes, it can be very difficult to understand and navigate the escape routes for franchisors that wish to deny a transfer. In this case, there are many options to explore both within the regional construct, and the franchise agreement itself. The guidance of an experienced franchise attorney is irreproachable.
Refusals to Renew
Provisions prohibiting unreasonable refusals to renew are frequently found in general state relationship laws. These statutes prohibit non-renewals by franchisors when they are not made in good faith. However, unlike the termination proscriptions above, the non-renewal provisions uniformly have gaping analytical and practical holes, that almost always favor the franchisor’s non-renewal.
In essence, these provisions sanction non-renewals so long as the franchise agreements explicitly state the standards for non-renewal. Even where the statutory provisions appear to bar non-renewals until the franchisee has been permitted a full opportunity to obtain a fair return on the investment in the franchise, courts have manipulated the language to the extent that it no longer provides the anticipated protection to the franchisee. Moreover, a statute for wrongful non-renewal will protect the franchisor, so long as he or she repurchases the franchise, which, incredibly, includes only the franchisee’s inventory. The goodwill of the business – the value of the business built up by the franchisee’s blood, sweat and tears – is shockingly and unjustifiably uncompensated.
Remedies for franchisors’ violations of termination or non-renewal provisions dictated by state franchise relationship laws are inconsistent from state to state. The most prevalent provision merely requires the franchisor to repurchase the franchisee’s inventory. Others require the franchisor to purchase goodwill, as well as remunerate the franchisee for damages, lost profits, un-recouped expenses and other legal costs and fees.
GLG routinely advises franchisors on the preparation of their offering circulars and their applications for state registration and licensing agreements. We will also assist in the development of strategic plans for domestic and international expansion, funding and distribution, and on a host of other legal issues affecting the preservation and growth of their franchise.
GLG works with franchisees to review agreements before they are signed. Neither the federal law, nor common law, provides protection to franchisees. At the state level, franchise laws may vary, and your rights may be complicated and subject to different interpretations. GLG can spot many of the pitfalls before you enter into a franchise purchase agreement. If you’ve already signed a franchise agreement, and you are experiencing difficulty in dealing with your franchisor on a day-to-day basis, you need to take immediate action. Corporate franchise attorneys will tell you the rules are set in stone, but this isn’t always the case. With a good franchise law firm at your back, you can often negotiate for a better outcome.