Franchisee Associations (Part A)

When you buy a franchise in New York, you are legally bound to your franchisor under the terms of your agreement. Generally these terms are written in favor of the business franchisor. However, to strengthen your position in the franchisor/franchisee relationship, you may form franchisee associations.

When franchisees form franchisee associations, they can gain better leverage in the franchisor/franchisee relationship. This can be effective in negotiations, during business disputes, and in cases of injustice. For instance, if a franchisor tries to force an unfavorable change upon the system, a franchisee association may stand together and fight the system change.

Franchisee associations can exist in different forms. One complex form of franchisee association is a franchisee advisory council. In this council, the franchisor will generally:

• choose the representatives;
• set the business agenda;
• finance the council; and
• control the flow of information.

While some franchisees view this as a favorable approach, others prefer a more independent approach. In independent franchisee associations, the associations finance themselves, set their own agenda, and get independent advice. This type of association may be viewed as a threat by a franchisor.

However, if you own a franchise in New York, there are many different ways to structure franchisee associations. Critical issues that must be considered when structuring a franchisee association include:

• the basis for voting rights;
• the definition of members;
• the payment of dues; and
• board representation.

The board of directors of a franchisee association can be structured as a regional or at-large basis. Sometimes, provisions are drafted to ensure representation by the largest franchisees, or to ensure regional diversity.

Whether you are a franchisor or a franchisee, if you have concerns about the impact of a franchisee association on your current franchisor/franchisee relationship-for instance, when the presence of or affiliation with such an association is putting a strain on your business dealings-it may be wise to talk to a New York franchise attorney about the implications of a franchisee association.

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