franchise law Archives - Duell

Feb 24

A FRANCHISOR’S KEY TO SUCCESS

By mwilliams Newsletter

The bedrock for a successful franchise system depends upon the uniformity of its operations. That uniformity is the essence of why consumers continually trade with one of the many franchisees in the system. Even though a franchisor’s logo, name and trade dress are an integral part of the system, it is a franchisor’s trade secrets, proprietary items and business acumen that effectively give one franchisor a competitive advantage over another. Thus a franchisor’s methodology of doing business (part of which is encompassed in the operations manual) constitutes one of the most important elements of the Franchise System. Likewise, without franchisees who comply with the system standards (methodology) there is no uniformity. Without uniformity the Franchise System is on a downward course which eventually will reach a level where there can be no recovery.

It does not matter whether the franchise company is “McDonalds” or a mom and pop operation, the franchisor must exhort a willingness to protect its system standards. Obviously a company like “McDonalds” has the capital and manpower to enforce system standards. Consequently a consumer knows that when they eat at a “McDonalds” in California or Alabama they will get the same basic food.

Large franchisors have learned that the dollars invested in enforcing system standards to create uniformity come back to them tenfold. Unfortunately it is generally the smaller franchisors, plagued by lack of readily available capital or a clear understanding of the value of franchise uniformity that suffer the most from problems with system compliance. As a result smaller franchisors must strive to find the areas that truly differentiate their franchise from others and clearly define the system, system standards and at the same time, they must find less capital intensive measures to facilitate compliance by their franchisees.

One method that smaller franchisors can use is the reward system. Reward your franchisees who do comply with system standards. Rewards can come in any number of different approaches and are limited only by a franchisor’s imagination. For instance, you may consider a program that awards discounts for purchases from your company to franchisees which are in compliance with system standards, or perhaps recognize compliance by a reduction in their percentage for royalty payments. The same idea could be used to provide royalty rebates if a franchisee remains compliant for a predetermined period. The options for a small franchisor are numerous and you don’t have to be a “McDonalds” to create an environment where franchisees want to comply.

CONCLUSION

Making a true commitment to developing, communicating and enforcing system standards will help a franchisor to ensure the consistent quality, name recognition and integrity of its franchise. Failure to do so will lead to a continual erosion of the franchise system and its eventual collapse.

Jan 07

Love0

You Must Get it from The Company Store

By mwilliams Newsletter

For many franchising companies, the “Company Store” has been a profitable addition to their bottom line. Franchisees must either buy all or a select number of items from the “Company Store” or alternatively, Franchisees must buy from designated suppliers who in turn pay the Franchisor a rebate. For many Franchisees, it doesn’t matter that the Franchisor makes a handsome profit. The convenience of one stop shopping is all that matters. However for other Franchisees, the thought that they are being gouged (rightly or wrongly) by the Franchisor ultimately leads to litigation.

The litigating Franchisees contend that the required purchases constitute a violation of the Sherman Antitrust Act by coercing them to purchase goods or services from specified suppliers, thus restraining competition when they should be able to make purchases from sellers of their own choosing.

In today’s litigious environment, it is crucial for any Franchising Company selling products or services or requiring Franchisees to purchase from designated sources, to understand Federal, and just as importantly, State legal regulations before launching a required supplier program. Not only is a Franchisor subject to Federal antitrust laws, but some States have their own antitrust laws. Recently a State Attorney General sought to hold one of our Franchise Clients in violation of that State’s antitrust laws, a very serious charge. Fortunately, our Client had consulted with us prior to implementing their pricing program and was ready. The charge never materialized!

It is also not uncommon for States to have relationship laws which directly affect your Franchise Agreements. As a result, you must understand how to successfully structure Franchisee programs from a legal perspective. For example, several States restrict a Franchisor’s ability to require its Franchisees to buy goods and services from the Franchisor or its designee as well as restricting rebates. A few States even prohibit sourcing restraints if goods of comparable quality are available elsewhere, or they place the burden on the Franchisor to show that restrictive purchasing arrangements are reasonably necessary.

Franchisors must also pay close attention to the disclosure requirements of the Amended FTC Franchise Rule. Now Franchisors are required to disclose supplier payments received by the Franchisor and the basis of payments made to the Franchisor from suppliers. In most cases, a Franchisor must disclose gross revenue from required Franchisee purchases.

CONCLUSION

With all these obstacles standing at the door, can it be said that the “Company Store” is still a good place to increase a Franchisor’s bottom-line? Absolutely! But, the “Company Store” takes planning before it can be opened. It is essential that the legal requirements be understood in order to develop and properly structure the “Company Store” and the required purchase program before it is launched. Duell Law is ready to help you. Plan ahead. Don’t be the next TV ad for the local Plaintiff’s lawyer which announces the multi-million dollar judgment against your Franchise Company.

Sep 03

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You Must Get it From the Company Store

By Addie Newsletter

In today’s litigious environment, it is crucial for any Franchising Company selling products or services or requiring Franchisees to purchase from designated sources, to understand Federal, and just as importantly, State legal regulations before launching a required supplier program. Not only is a Franchisor subject to Federal antitrust laws, but some States have their own antitrust laws. Recently a State Attorney General sought to hold one of our Franchise Clients in violation of that State’s antitrust laws, a very serious charge. Fortunately, our Client had consulted with us prior to implementing their pricing program and was ready. The charge never materialized!

It is also not uncommon for States to have relationship laws which directly affect your Franchise Agreements. As a result, you must understand how to successfully structure. Franchisee programs from a legal perspective. For example, several States restrict a Franchisor’s ability to require its Franchisees to buy goods and services from the Franchisor or its designee as well as restricting rebates. A few States even prohibit sourcing restraints if goods of comparable quality are available elsewhere, or they place the burden on the Franchisor to show that restrictive purchasing arrangements are reasonably necessary.

CONCLUSION

With all these obstacles standing at the door, can it be said that the “Company Store” is still a good place to increase a Franchisor’s bottom line? Absolutely! But, the “Company Store” takes planning before it can be opened. It is essential that the legal requirements be understood in order to develop and properly structure the “Company Store” and the required purchase program before it is launched. Duell | Law is ready to help you. Plan ahead. Don’t be the next TV ad for the local Plaintiff’s lawyer which announces the multi-million dollar judgment against your Franchise Company.

If you are a franchisor who has any questions about developing a Company Store, feel free to reach out to us at 205.408.3025 or email info@DuellLaw.com.

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May 01

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Disclaimer, Waiver and Integration Clauses

By Richard Duell lll Newsletter

Disclaimer, waiver and integration clauses are quite common provisions in franchise agreements, but the manner of how they are used and the way they are incorporated into the agreement determine their enforceability and consequently, their effectiveness.

Generally, when referring to a disclaimer we mean, the repudiation or renunciation of a claim or power vested in a person. A corollary provision to the disclaimer clause is the waiver, commonly thought of as the intentional or voluntary relinquishment of a known right. Disclaimer and waiver clauses are normally used in conjunction with an integration clause, which merges all prior understandings between the parties and all contemporaneous agreements into the franchise agreement as a final expression of the parties’ intent.

When not properly incorporated into your franchise agreements, these clauses can open up a can of worms by allowing franchisees to look at other ancillary documents for their interpretation of what the franchise agreement is meant to say. Rather than protecting the Franchisor, these clauses can be a sledge hammer for the franchisee to use against you. As the Franchisor, you do not want any opening for your franchisees to use against you. The language in your franchise agreement must be specific and negate any potential opening for your franchisees.

Whether your disclaimer, waiver and integration clauses are enforceable in court usually starts with the state’s public policy. As you might expect, public policy does not normally favor permitting a Franchisor to contract out of obligations, but good news – courts do recognize the legal implications of a contract, even in the face of statutory anti-waiver provisions, because they are reluctant to ignore the intentions of the parties which are evidenced by the written contract. When courts do give effect to disclaimer, waiver and integration provisions in the face of allegations like fraud, they do so based upon the initial finding that the franchisee could not have relied on the supposed misrepresentation because of the express language of the contract itself.

CONCLUSION

So, are disclaimer, waiver and integration clauses effective? The answer lies in how they are drafted and incorporated into your franchise agreement, as well as how each state accepts them. Are disclaimer, waiver and integration clauses and provisions important? Absolutely, they can be critical if you are sued by a franchisee. Without incorporating such provisions correctly in your franchise agreement you have nothing in writing to refute a franchisee’s allegations.

If you are a franchisor who has any questions about disclaimer, waiver and integration clauses, feel free to reach out to us at 205.408.3025 or email info@DuellLaw.com.

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Aug 02

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Saving Dollars By Using Intranets

By Richard Duell lll Newsletter

Does your staff spend a significant amount of time mailing or faxing new manual updates, newsletters, reports or a variety of other information to your franchise system? Are you apprehensive about sending confidential information over the Internet? If your answer to either question is yes, you should consider implementing a plan to establish an Intranet site. If you think your company is too small for its own Intranet site, then this article is definitely for you.

An Intranet site, as opposed to internet is a company internal site with limited access. By using encryption technology and limiting access to persons with passwords, the site is not available for public view like normal internet sites. With a secure Intranet site a franchise company can feel comfortable in sending franchisees information, such as:

Training documents, manuals, reports and other information normally copied or printed and sent through the mail;
Software upgrades for immediate use;
Newsletters;
Continued updating of approved vendor lists;
Changes in personnel directories, with the latest areas of responsibility;
Last minute vendor close outs;
And the list goes on and on.

It shouldn’t take too long to see that the above list just touches the surface of potential uses for an Intranet. In fact, not only can a Franchisor disseminate information over an Intranet site, but franchisees in the system can share ideas and experiences with other franchisees by using an Intranet bulletin board. Some Franchisors use their Intranet for franchisee reporting. By compiling the reported franchisee information over a period of time, Franchisors can analyze the reports and help franchisees strategically plan for the future or help them correct existing problems.

If a Franchisor’s Intranet site is set up to allow vendors limited access, franchisees can order supplies over the site from approved vendors with password access and guess what – your franchise company now has a new means to monitor franchisee orders and an additional tool to discover under reporting (See Franchisor Alert February 2016 “Do You Have Under Reporting Franchisees?” for other under reporting tools).

The potential uses for an Intranet site are unlimited and as a client with less than forty franchisees told me: “By eliminating many of our costly and inefficient methods of doing business, our site will pay for itself, but more importantly, our relationship with franchisees is at an all-time high. If I was starting my company again, I would have an Intranet site before I sold my first franchise.”

CONCLUSION

In Franchising it is important to never be satisfied with mediocrity. Intranets have proven to be successful in Franchising and can help provide value to your bottom-line.