The benefits in working with us include combining a specialism with practicalities of real life. We help franchisees selling or facing difficulties. We also work with franchisors wishing to streamline and mitigate exposure.
Why pick us for your legal team
We are specialist solicitors for franchise law and agreements, bringing to you benefits which include:
- We have probably dealt with similar issues to those faced under your franchise agreement before. We can consider the surrounding structure in which the franchise operates. For example we have the expertise to review the commercials for the purchase and sale of franchises, employment law issues, licence agreements and tackling infringement.
- We advise on franchises of all sizes, types and industries. We find clients of the larger law firms are attracted to us because they know they will be welcomed by us, receive better value for money and not be placed at the bottom of the list.
- Our lawyers can work as part of your in-house team available as and when you need us.
Managing the franchise arrangement
To help you formulate your position we have explained below some of the core points that a franchise relationship and agreement should cover.
- Creating the franchise agreement;
- Protecting the franchise brand;
- Improving your chances of success;
- Resolving franchise disputes successfully; and
- Acting in competition.
Creating the franchise agreement
The key legal issues in a franchise contract usually revolve around:
- Intellectual property rights;
- Obligations imposed on each party;
- Reputational and financial risks;
- What happens when things do not go to plan.
At the core of the franchise relationship
The franchise agreement should have three critical components.
- Protection of the brand;
- Operating processes designed to deliver the brand’s promise; and
- On-going support and training that enables franchisees to grow.
Getting the best out of your franchise agreement
Both franchisors and franchisees should be aiming to make sure that the franchise agreement:
- Helps to create additional revenue streams and offers a competitive pricing arrangement. You need to be able to respond to market conditions quickly. Rigid agreements can trigger losses.
- Reduces your risk involved in manufacturing, promoting and selling the products in the geographical market the franchise agreement covers.
- There are sufficient checks and balances to protect and enhance the brand via consumer loyalty and goodwill.
- If you are the franchisor you retain full ownership of the brand.
- Advantage is made of any increased purchasing power enjoyed by the franchisor which could be passed onto the franchisee.
- If you are the franchisee that other franchises will not be sold in close proximity to your patch or geographical territory.
Protecting the franchise brand
An essential part of the franchise agreement will be what ‘use of the brand’ will cover. Use and expectations need to be considered in detail. Branding is the key area where business failures and franchise disputes arise. We can help franchisors and franchisees consider the most important aspects for their businesses.
Usually this means thinking about:
- Trade mark(s)/brand;
- Patent(s) on equipment and software used in the business;
- Copyright in the instruction manuals;
- Design rights in the marketing materials;
- Operations manuals;
- Confidential information;
- Know-how and operating procedure; and
- Database and marketing knowledge.
Exposure for the franchisor
Our solicitors help you to preserve your trade secrets disclosed under the franchise agreement. The risk is that without express agreement the franchisor will be exposed to:
- Franchisees using your suppliers to negotiate different deals perhaps in competition; or
- Taking your know how to set up a rival brand; or
- Damaging the brand by inappropriate commercial conduct.
Improving the chances of success
A problem we see with many franchise relationships is that they only think about the good times. This leaves both franchisors and franchisees vulnerable when the time comes to examine the small print. We can help you find the right approach for your franchise.
Due diligence before entering into the franchise agreement
Sounds obvious but we do see due diligence on the franchise model overlooked in practice. You need to be clear on what exactly is being offered. It pays to ask for financials on other franchisees and obtain references. Understand the big picture and smaller details such as investment plans and growth projections in your area.
Think about working capital requirements
Insufficient working capital is one of the most common reasons why a franchise fails. It is in the interests of both franchise and franchisor to consider the projections. Success means the franchise agreement works for both parties.
Keeping the brand marketable
Brands need constant refinement and promotion. Markets change and regional demands are different. Both parties to the franchise agreement need to be clear about efforts and expenses required to keep the brand fresh and marketable.
Break clauses under the franchise agreement
The opportunity to review and refine the franchise agreement is important.
Large versus small
In many franchise disputes the franchisor is a large multinational business and the franchisee is a small operation.
- This means the franchisee has to negotiate good dispute resolution clauses as the franchisee is unlikely to have the same reserves of the franchisor.
We work hard to avoid a dispute, or if you are already in dipute, to resolve it. The typical ways in which we deliver expertise of benefit include:
- Formulating a strategy
- Negotiating a settlement of the franchise dispute
Formulating a strategy
It is not uncommon for a franchisor to submit a “pre sales pack” to a prospective franchisee. This will usually contain details regarding expected sales levels if a franchise is taken up, historic financial figures, and market estimates. If the deal does not live up to what was expected, and the franchisee feels as though false promises were made, action can be taken. All will depend upon:
- Contents: the detail of the pre sales pack, and whether the franchisee acknowledged that no statement was a representation or warranty as such;
- Loss: has the franchisee suffered loss as a result of entering into the franchise? The answer is nearly always yes on the basis that upfront fees are charged as are recurring royalties;
- The franchise agreement: which will usually supersede any pre-contractual discussions, and a clause will commonly confirm this. However, these clauses are usually always open to challenge so by no means does it prevent a claim.
If the franchisee(s) can show that the statements were made with the intent of inducing the franchisee or misrepresenting the true position then a host of claims can be commenced.
Formulating a strategy for the franchise dispute
We will work with you to:
- Evaluate the strength of any claim under a franchise agreement;
- Consider the options available to you;
- Determine whether the franchise agreement can be terminated;
- Consider the possibility of keeping the case out of court by settlement; and
- Take court action if that is the only solution.
Negotiating a settlement of the dispute
You should understand the strength of your position under the franchise dispute before you start negotiating. It may be that the other party’s breach entitles you to end the franchising agreement and claim damages accordingly. Although this may be the legal position, it may not be the most appropriate commercial decision. This is where our solicitor experience adds value.
Assessment of strength of the case
Thinking about what steps to take may include:
- Whether the dispute is likely to receive negative press coverage, damaging goodwill;
- What will happen to the intellectual property rights on termination;
- Whether either party is to be bound by post termination restrictions; and
- The severity of the breach of agreement and whether it can be solved without termination of the franchise agreement.
Off the record discussions
In our experience, it is never too soon to try and explore ways to resolve the franchise dispute. Discussions can be held privately and marked “without prejudice”. Without prejudice means that if you did end up in court details of settlement discussions are private. Similarly, financial offers to settle can be made without prejudice.
Where appropriate, we advise parties to mediate their differences. A mediator is an independent third party, often an expert in the sector, who seeks to resolve the parties’ differences and facilitate settlement. Mediation is surprisingly successful as it separates the parties and seeks to resolve differences.
Acting in competition
A commercially astute franchisor will always seek to impose restrictions on its franchisee. Legally these restrictions are known as restrictive covenants. The covenants will stop the franchisee from competing for a period following termination. Such restrictive covenants may limit the geography, scope and duration of a franchisee’s trade. Other limitations typically include restrictions on the use of trade secrets and confidential information.
The risk of being in breach of the franchise agreement restrictions is that the franchisor may seek an injunction to stop the ex-franchisee from operating the new business. Injunctions are very expensive legal actions to deal with and steps to avoid the risk will be worth while.
Enforcing restrictive covenants
Broadly, for a restrictive covenant to be enforceable it must protect the goodwill of the franchisor. Most franchisors have established goodwill, but not within the geography or scope of its franchisees’ future trade. These points need to be raised to prevent the future business objectives of franchisees being stifled. Our experience in extracting franchisees from franchise agreements enables us to formulate creative solutions.
Competition considerations in a franchise dispute
Restrictions will be enforceable where they protect legitimate interests. An example may be the protection of confidential information from a franchisor’s competitors. We can formulate arguments to meet your objectives. Know-how and confidential information underpin franchise relationships. Without protection values can be diminished.