Counseling Franchisees

• Author: Barkoff, Rupert M., Selden, Andrew C.
• Pages: 275-297

275

Counseling Franchisees

CHAPTER 7

Andrew C. Selden and Rupert M. Barkoff

Contents

I. Counseling the Prospective Franchisee . . . . . . . . . . . . . . . . . . . . . 277

A. The Role of the Lawyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

B. The Counseling Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

C. Deconstructing the Uniform Franchise Offering Circular

(UFOC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

D. Alternatives: Nobody Has to Buy a Franchise . . . . . . . . . . . . . . 286

II. The Negotiability of Franchise Agreements . . . . . . . . . . . . . . . . . . 286

A. Is a Franchise Agreement Negotiable? . . . . . . . . . . . . . . . . . . . . 286

B. What May Be Negotiable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

III. Franchisee Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

A. The Evolution of Franchisee Associations . . . . . . . . . . . . . . . . . 289

B. Structuring an Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

IV. Litigation and Arbitration: When All Else Fails . . . . . . . . . . . . . . 293

A. The Imbalance in Judicial Remedies . . . . . . . . . . . . . . . . . . . . . 293

B. Legislative Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

The challenges of legal counseling of franchisees are often underappreciated. Many

start-up franchisees don’t want to pay substantial legal fees for a thorough analysis

and renegotiation of lengthy form documents. Counseling of different kinds will be

needed at different stages of the franchise relationship. The lawyer will be called on

as a business counselor as well as a legal advisor.

There are four stages of franchisee counseling. The first stage occurs at the

time of purchase. At this point, the franchisee needs a professional advisor who is

276 Fundamentals of Franchising

familiar with investments in business but who also has some knowledge of the idio-

syncrasies of franchising. Advice should be offered on whether a franchise is actu-

ally an appropriate investment vehicle and, if so, on comparatively evaluating different

offerings.

During the ownership stage, business-related counseling is often required. If

important franchisee-franchisor disputes arise, more traditional legal counseling is

called for regarding the franchisee’s legal rights to protect his or her business inter-

ests and if, when, and where it is appropriate to turn to the courts or to alternative

dispute resolution for issue resolution. Negotiating skills are always a plus.

Problems may surface in a franchise system that are not peculiar to a par-

ticular franchisee but, instead, are systemwide. In these instances, the counselor

must be familiar with the business arrangements within the system and understand

what the bargaining positions of franchisees may be. In addition, the counselor

must have an understanding of how to organize the affected franchisees and to

channel those collective efforts in an effective manner. In part, the counselor will

not only be playing the role of a traditional business lawyer but will to some de-

gree be acting as a diplomat. That is, the counselor will be trying to take a diverse

group (the franchisees), often with different individual needs, but some shared or

common issues with other franchisees, and find common ground on which to nego-

tiate a mutually agreeable solution to a common problem. Once that task has been

achieved, the counselor will frequently play a role in negotiating a collective agree-

ment with the franchisor.

Lastly, when a dispute has arisen and diplomacy has failed, the counselor

must be skilled in dispute resolution. The dispute might be a traditional one before a

court, or it might be resolved through various alternative dispute resolution proce-

dures. Arbitration in particular has made a strong impression on the franchise scene

in recent years.

This chapter addresses the problems encountered in each of these situations.

This focus does not lend itself to detailed discussions of legal principles, with case

and statutory citations, for little on this subject exists in the cases or statutes. Rather,

most of what follows is based on experience. While common fact patterns often ap-

pear, franchising is sufficiently complicated, diverse, and fluid that sound but inher-

ently subjective judgment is called for, rather than a “right” answer. Needs,

circumstances, personalities, and resources differ from one system to another, some-

times substantially. For example, as noted later, negotiating a franchise agreement

with an industry leader will be a markedly different experience from negotiating

with a start-up organization.