Most franchise disputes begin with a telephone call, usually followed by a face-to-face conversation between the franchisor representative and franchisee. The franchisee should understand his legal position before the complaint. The agreement between the two parties (the “contract”) defines the relationship between the franchisor and franchisee. A valid and binding contract must have
- Agreement– an offer from one party (franchisor) with terms that are accepted by the second party (the franchisee).
- Capacity– all parties have the ability to understand the terms of the obligations with acceptance given voluntarily of free will.
- Consideration– parties must exchange something of value, i.e., cash fee for a franchise right.
- Intention– parties must have clear intent to enter into the contract.
Franchise agreements are regulated by the Federal Government and some State governments (Florida, for example, has not enacted franchise-specific laws and is not a franchise registration state. The Sale of Business Opportunities Act regulates franchise offerings in that state.) Most franchise agreements have detailed, specific terms that describe each party’s obligations, including location, protected territory (if any), hours of service, products or services offered, and supply requirements. Federal law requires the disclosure of 23 specific items of information to a franchisee.
Before taking any steps to confront a franchisor, the franchisee must know their rights spelled out in the agreement. In many cases, the obligations have been confirmed or amended by previous court decisions and may be unknown to the franchisee. Many franchises have independent groups of company franchisees, i.e., franchise advisory councils, created to protect the rights of franchisees. They are generally good sources of information.
Contract breaches are typically a matter of fact, a binary condition of “yes” or “no” to the question. Unfortunately, the issues underlying most disputes are not easily resolved by contract terms. For example, a franchisee needing relief from royalty payments due to Covid closure is unlikely to find justification in the contract. In such cases, the advice of an attorney may be warranted.