The marketing material and promises made by franchisors to potential franchisees are often glowing. However, once a franchise is purchased, sometimes, the franchisee finds out that the franchisors have over-promised and under-delivered.
More than just poor performance, sometimes franchisors violate state and federal laws. According to Forbes, of 2,489 franchises analyzed, 1,355 had zero instances of lawsuits. This leaves nearly half of the franchises studied having from 1 to 50+ lawsuits. These statistics are approximately commensurate with national divorce averages, 50/50. Meaning, that franchises and marriages have about the same chances statistically.
What causes a franchisee to sue the franchisor?
Franchise litigation can often arise for the following reasons:
- Territory and encroachment disputes
- Franchise termination disputes
- Financial disclosure or document compliance violations
- Franchise Disclosure Document (FDD) or Uniform Franchise Offering Circular (UFFOC) violations
- Antitrust violations
- Discriminatory, deceptive or unfair trade practices
- Franchisor fraud
- Liquidated damages
- Failure to renew
- Supply chain sourcing and pricing issues
The possibilities and reasons why a franchisee may want to sue the franchisor are virtually limitless. However, the above are the most common reasons.
Franchising can be an amazing vehicle for prosperity and growth. However, just like traditional businesses can have legal disputes, so can franchises. When a dispute ensues, there are many creative and viable solutions that do not have to end in litigation and going to court. Court battles are costly, time-consuming and take away from energy that could otherwise be invested in the business itself. Mediation, collective bargaining, and settling out of court are often tactics employed in franchise disputes to avoid litigation.
If considering a lawsuit to resolve a dispute with a franchisor, it Is important to know your options and rights as a franchisee.