Two Common Reasons for Franchise Lawsuits

Anyone who is thoroughly researching a franchise opportunity will likely see a pattern – that most franchises have been involved in a lawsuit with a franchisee. If you are considering a franchise opportunity, you may be interested to learn about the two most common reasons that franchisors/franchisees find themselves in the midst of litigation.


As experienced Los Angeles franchise attorneys, we can attest to the fact that in most cases, there are better, more cost-effective legal options to a lawsuit, and that litigation should be used as a last resort to resolve any conflict.


Now, what are the two most common reasons for franchise litigation?


The franchisor or franchisee is believed to be conducting business in a way that is unexpected or may result in injury to the business. This can work both ways. For instance, a franchisor may feel that the franchisee is doing something to attract more customers into the business that could be damaging to the company’s brand, such as having waitresses wear skimpy costumes.


On the other hand, a franchisee may fear loss of customers or revenue if the franchisor begins opening other units in close proximity to their own unit. It is easy to understand why a franchisee would have misgivings about, for instance, another Wendy’s restaurant opening within a mile or two of their own.


The franchisor or franchisee believes the other party is not holding up to his/her end of the bargain under the terms of the franchise agreement. Frequently, franchisees are made promises by the franchisor in the initial stages of researching or investigating the franchise opportunity; it is only after entering into a franchise agreement that the verbal promise is not kept. Franchisors generally provide ongoing support and assistance in the initial setup of the new franchise, however may fail to keep commitments agreed upon in the contract.


A franchisor may decide to file a lawsuit if a franchisee violates no compete or territorial operating provisions, or if the franchisee does not operate his/her business in accordance with the condition/terms of the agreement.


Overall, most successful franchises have an extremely low failure rate. When considering a franchise opportunity, be sure to choose a franchisor with good values, one who is committed to your success and who tries to avoid litigation at all costs.


If you are considering a franchise opportunity, work with an LA business lawyer who can guide you, explain all of the complexities involved in franchising, and review any opportunity you are seriously thinking about so that in the end, you know you have made the right decision. At Spotora & Associates, we help businesses succeed.

This entry was posted on Tuesday, October 14th, 2014 at 1:26 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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