Franchisee Encroachment And Cannibalization Attorney
Zarco Einhorn Salkowski & Brito, P.A. has been at the forefront of protecting the legal rights and interests of franchisees in the USA and internationally for over 35 years.
A well-known, experienced and decorated trial lawyer and negotiator, Robert Zarco is frequently awarded legal industry distinctions including “Lawyer of the Year” in 2021 for Franchise by Best Lawyers of America.
Our attorneys help franchisees advocate for their rights on equal footing with their franchisors, protecting them from predatorial business practices including encroachment and cannibalization.
What Is Encroachment?
Typically, encroachment arises when a franchisor places a competing unit in close proximity to an existing unit. But encroachment can also include other types of activities or actions that impact the sales of an existing franchise unit, or that violate the doctrine of the implied covenant of good faith and fair dealings.
There’s an inherent conflict of interest between franchisors and franchisees. Both parties want to maximize their profits and improve their bottom-line. However, franchisors still must hold to certain standards within the franchise relationship.
What Are Examples Of Encroachment?
In today’s competitive landscape, encroachment can take on many forms. Including:
- Opening a new franchise unit in your territory.
- Promoting alternative channels of distribution, including app sales, delivery options, and other retail products.
- Building new franchise units with competitive advantages, such as a drive thru window or more modern, amenities.
All of these actions could affect you and your ability to operate your business under the terms of your established relationship with the franchisor.
What Is Cannibalization?
In simple terms, cannibalization is the transfer of sales from one location to another. Examples of cannibalization include providing alternative distribution channels or creating marketing promotions that advertise other locations.
How Can Franchisees Protect Themselves?
When it comes to protecting your business from encroachment and cannibalization, it is important to remain proactive. While franchisees have rights and should not acquiesce to pressure from franchisors, they must act with tact and clear intent.
Establish Clear Boundaries
It is important to have clear language in your franchise disclosure documents and other agreements with franchisors. Territory rights should be specified explicitly in writing, and you should understand exactly what territory is exclusive to your business. You must be careful to be extremely specific when establishing these boundaries.
For example, a contract written by the franchisor may say that your territory is 25 miles but won’t tell you if those 25 miles represent a radius from your location, or if they extend only in one direction. Depending on how these 25 miles are structured, new locations could be added within a mile of your location.
When it comes to buying into a franchise opportunity, many details in the franchise disclosure document are important to review and include.
Notify The Franchisor
When a franchisor rolls out a new program, location or distribution channel that encroaches on your business, the first step you should take is to notify the offending party of your issue. It is important to do this in writing, so that you document the offense and made it known that you objected to it. This is important, because if too much time passes from the action and you’ve made no attempt to notify the offending party, the courts may rule that you acquiesced to the policy despite what your contract specified.
Our attorneys have been able to stop national programs and changes in franchisor policy with a single, well-drafted letter documenting the grievances franchisees would suffer under these programs.
Exercise Your Rights
When it comes to disputes, franchisees must be proactive to ensure that franchisors are acting in good faith. Exercising your rights takes knowledge, experience, and strong legal counsel. From the initial negotiation of your franchise agreement, to litigating disputes in civil trial, dedicated legal support can lend you the leverage you need to take back control over your business.