Franchising can be a great way to grow a business, but it also comes with legal risks. Franchisors and franchisees can face disputes that may harm their operations and finances.
What kinds of legal issues arise in franchises? Below are some important points to consider.
Disagreements over the franchise contract
The franchise agreement is the main contract between the franchisor and franchisee. Many legal disputes happen when one party believes the other has broken the terms. This might include disagreements about fees, territory rights or contract renewal. If the agreement is unclear or one side acts in bad faith, legal disputes may follow.
Issues with branding and control
Franchisors usually want to keep their brand image consistent. This means franchisees must follow strict rules. Disputes can arise if a franchisee strays from brand standards or if the franchisor tries to enforce control beyond what the contract allows. These issues often involve marketing strategies, product sourcing or customer service practices.
Termination and non-compete clauses
Ending a franchise agreement can also lead to problems. A franchisor might end the contract due to poor performance or missed payments. Franchisees may feel the termination was unfair. After the agreement ends, disputes sometimes arise over non-compete clauses. These clauses may limit a former franchisee’s ability to open a similar business.
Many franchise agreements include clauses that require disputes to go through mediation or arbitration before going to court. These processes are often built into the contract and must be followed. Common outcomes can include contract changes, financial settlements or the end of the franchise relationship.
If you are involved in a franchise dispute and negotiations have broken down, the court may be your best option. At this point, it is best to seek some legal guidance.