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Franchisors: How Do You Reduce your “Litigation Exposure” and “Legal Fees”?

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 02/15/2016 | Category: Corporate Counsel | No comments

 

Short Answer: avoid lawsuits.  That is, work on and establish with your legal counsel, legal systems, and procedures that is designed to avoid unnecessary litigation. (Slightly longer answer follows)

While the advice that I am offering here may sound obvious and, possibly, even a little self-serving, it is nevertheless an honest and critical point that far too many franchisors and business owners overlook. That is, in most (but not all) litigation once your are involved (either as a plaintiff or defendant) the advantages and benefits that may or may not stem from the outcome of the litigation will, many times, be outweighed by:

(a) The legal fees that you will incur,

(b) Lost productivity associated with your focus on the lawsuit (as opposed to building your franchise systems), and

(c) The uncertainty that is inherent in all litigation – no matter how strong your case is.

Faced with the inherent costs in all litigation, the best course of action for both start-up and established franchisors is to establish with your legal counsel open channels of communication focused on cutting-down and mitigating your litigation exposure. That is, in addition to the critically important task of managing your regulatory requirements and disclosures as a franchisor, you must discuss and establish with your legal counsel a fair and flexible relationship and system focused on the management and monitoring of your day-to-day legal activities. Some of these activities should include:

(a) The review of vendor agreements,

(b) The establishment of standardized franchisee communications and compliance notices;

(c) The quarterly evaluation and review of your trademarks and the filing of supplemental trademark applications and affidavits;

(d) The establishment and maintenance of a specified and well documented encroachment policy respecting the grant of additional franchises;

(e) The establishment of a clear and concise policy respecting the negotiated modification of your franchise agreements;

(f) The maintenance of strategic employment agreements with your key employees that are focused on the implementation enforceable restrictive covenants.

While establishing an on-going day-to-day working relationship with your legal counsel may be more expensive than doing nothing, the value of this planning process will far outweigh the cost associated with unnecessary and avoidable litigation. Once tasks become standardized and well establish, my experience has been than many activities may be incorporated into the tasks of your in-house staff and, over time, serve to reduce your long-term legal fees.

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