Wednesday, December 5, 2012

Franchise Lawsuits - Chris Conner Franchise Consultant

Franchise Lawsuits:  Franchisees will sometimes sue, this is part of doing business.....or is it?  In my time as a franchise consultant since 2003, I have been involved in several thousand transactions in the franchise industry without any lawsuits or litigation involved.  So how to some franchises remain out of the courtroom while others seem to be involved in endless litigation? 

Why Do Franchisees Sue?

Our expert explains what you need to know to avoid the trap of franchise litigation.
Q: I've been looking into a number of franchise companies. I'm finding that most of them have had lawsuits with some of their franchisees. Is there a common denominator for why these suits occur, and what can I do to avoid this if I become a franchisee?
A: The sad fact of life is that we live in a litigious society. Many Americans believe lawsuits are a fine method to solve disputes. I know a number of very good franchise attorneys, and they all say litigation should always be a last resort to conflict resolution. They also point out that, in most franchise lawsuits, no one really emerges as a winner. One party may prevail, but the price of litigation, economic and otherwise, is usually much higher than either party anticipated.
There are two common reasons litigation occurs in franchising:
1. When one party to the franchise agreement believes the other is not doing whatever they agreed to do under the terms of the agreement. For instance, the franchisor may initiate litigation for failure to operate the business under the terms and conditions of the franchise agreement, for failing to pay ongoing fees or royalties as specified, for violating the territorial operating provisions of the agreement or for violating noncompete provisions.
A franchisee may initiate litigation alleging that the franchisor has failed to provide the agreed upon support in relation to any aspect of the initial business setup or has failed to live up to the terms of the agreement in relation to ongoing commitments. Franchisee lawsuits often allege that the franchisee was promised something verbally during the investigation of the opportunity that later did not materialize.
2. When either party believes the other is conducting itself in some unanticipated manner that is injurious to its business. For example, franchisees might initiate litigation if they believe the franchisor is opening additional units so close to their unit that the new one will encroach on their business and harm it.

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