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Legal Remedies for Franchisees

If you are a franchisee and you have a dispute with the franchisor, the question that arises is what are legal remedies and options that may be available to you. Much will depend on the circumstances, such as whether or not you are faced with a termination issue, non-renewal issue or an issue involving alleged breaches of the franchise agreement. Situations will vary significantly, but as a franchisee when evaluating and understanding your legal rights it is important to understand the legal remedies that may be available to you. Below we review some of these legal remedies and issues that you should be considering and evaluating.

Start By Understanding the Cause for the Dispute

When evaluating the legal option, rights and remedies that may be available to you, it is important to first assess where you are at in the franchise relationship. Important questions that you need to answer and discuss with your franchise lawyer will include:

  1. Whether or not you are in default of the franchise agreement?
  2. Whether or not the franchisor has sent you a default notice?
  3. Whether or not you have sent the franchisor a default notice?
  4. Whether or not the franchisor is attempting to terminate your franchise agreement?
  5. Whether or not you want to terminate the franchise agreement?
  6. Whether or not the franchisor controls key business assets such as the lease to the location of your franchised business?
  7. Whether or not you want to continue to operate the business under a different name as an independent business if you are successful in terminating the franchise agreement?

The answers to these questions will play an important role in understanding the legal rights and remedies that may be available to you as a franchisee.

Franchise Regulation Rights

Although franchising and the relationship between you and the franchisor is one of "contract" that is defined by the terms of your franchise agreement, there are a number of franchise laws and regulations that may afford you some very substantial rights and negotiating leverage. These franchise regulation rights and their associated remedies are derived from the franchisor's obligation to timely and properly disclose its FDD to you. No matter how long ago you signed your franchise agreement if either:

a) The franchisor did not disclose its FDD to you no less than 14 days prior to signing the franchise agreement or paying money to the franchisor;
b) The franchisor's FDD was not current or contained a material omission when it was disclosed to you; or
c) The franchisor's FDD was not currently registered if you or the franchisor were located in a franchise registration state,

Then the right and remedy that may be afforded to you would be recission whereby you may be entitled to terminate your franchise agreement and obtain a refund of the fees that you paid to the franchisor. There are other regulatory rights that may be available to you under certain state franchise laws. A number of states have enacted franchise relationship laws which may supplement your contractual rights. Depending on the state that you are located in you may have supplemental rights that prevent the franchisor from terminating your franchise and affording you additional renewal rights.

Franchise Contract Rights

Your relationship with the franchisor is a contractual relationship and an evaluation and understanding of your legal remedies as a franchisee will be dependent on the terms of your franchise agreement and any amendments and modifications that have been made to it. In addition to the express terms of the franchise agreement it is important to evaluate the franchisor's FDD to ensure that the FDD properly disclosed the terms of your franchise agreement. When dealing with contractual rights your remedies will fall into traditional contract remedies that include breach of contract, fraud, tortious interference with contract and unjust enrichment.

As a franchisee, chances are that the rights set forth in the franchise agreement are much more favorable to the franchisor and not you. However, depending on the facts which require a careful evaluation, you may have substantial rights and legal remedies available to you under the franchise regulations and application of state franchise relationship laws. It is critical to understand that your legal rights and remedies may go far beyond the terms of your franchise agreement.

To learn more about suing your franchisor, what to evaluate and the best approach, click here.

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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