Legal Corner

Terminated Tutor Time Franchisee Prevails in Non-Compete Enforcement

A former Tutor Time franchisee prevailed in an attempt by the franchisor to obtain a preliminary injunction. Read more about this case involving a non-compete.

Pepperidge Farm: Distributorship or Franchise

It’s important to understand the difference between a franchise and other business relationships. This article presents an actual example of the difference between a franchise and distributorship.

California Department of Corporations Sanctions Restaurant Franchisor for Violations of California Franchise Investment Law

A restaurant franchisor in California was sanctioned and levied financial penalties for violating the California Franchise Investment Law.

Canadian Judge Rules Against Dunkin Donuts for Failure to Protect Franchisees

Dunkin Donuts loses ruling for failing to protect its franchisees against competition. Judge rules franchisees not at fault.

California Ruling Could be another Step to Franchisor Employer Relationship

Learn how a recent decision by a California court could strengthen the basis for an employer-employee relationship among certain franchisors and their franchisees.

Covenants Not To Compete: Beware of the Legalese!

Prospective franchisees need competent legal counsel to advise them before executing their franchise agreement. Franchise contracts include legal terminology that can fool the layperson.

When Will Franchisees Be Considered Employees? Still Undecided

A number of recent court cases have involved claims by franchisees that they were de facto employees of the franchisor. The following court case is another example of how the question of the employer-employee relationship under a franchise contract continues to come up.

What We Can Learn from the Cold Stone Creamery Franchise

The Cold Stone Creamery franchise is replete with a history of problems that include franchisee lawsuits and an expose in the Wall Street Journal. Learn why this franchise was destined to have problems right from the start.

Franchise Agreement Negotiating Tips for Franchisees

As a franchisee you’ll be bound by a franchise contract. Before you sign on the dotted line you should be comfortable with your franchise agreement. Here are some suggestions for dealing with key provisions.

Scrutinizing Franchise Legal Claims

Franchisees need to carefully consider their actions when faced with a franchisor that is seeking claims and recourse for violations under the terms of the  franchise agreement.

A Cautionary Tale On Arbitration Clauses For Prospective Franchisees

The following case demonstrates why individuals considering executing a franchise agreement in California should be cautious regarding franchise agreements that contain an arbitration clause. Learn why it’s important to utilize experienced franchise counsel.

Firehouse Subs Appeals Court Order in Favor of Calli Baker’s Firehouse Bar and Grill

FranchiseKnowHow has  reported on the litigation between Firehouse Subs and Calli Baker’s Firehouse Bar and Grill. Following is the latest on this ongoing battle as reported by Heath Scurfield, owner of Calli Baker’s Firehouse Bar and Grill.

China Should Enforce New Laws to Protect Franchisors

As more franchisors enter China through joint ventures and licensing agreements it’s important for the Chinese Judicial system to enforce laws already in place to protect the franchisor and licensee.

Understanding Indian Franchise Regulations

India continues to offer increased franchise opportunities for U.S franchisors with the world’s largest middle class. Understanding Indian franchise regulations is an important component for entering the Indian market.

Item 16: Restrictions on What Franchisees May Sell

Prospective franchisees should understand their obligations under the franchise agreement. An important requirement, which is disclosed in the FDD under Item 16 addresses the sales of products and services.

Required Disclosures: Obligation to Participate

Franchisees may have an obligation to actively participate in the operation of the franchise. This issue is the basis of Item 15 in the Franchise Disclosure Document.

Required Disclosures: Item 13, Trademarks

The franchise brand represents the foundation of the franchise program. Protecting the brand through trademark registration is key. Learn why this is an important part of the Franchise Disclosure Document review.

Required Disclosures - Item 13, Trademarks (Part 2)

In part 2 of Item 13 from the FDD, learn more about the franchisors trademarks and related issues.

Understanding the FDD: Item 12, Territory

The foundation of a successful franchise will often rest upon the franchisee territory and the rights that come with that territory. Prospective franchisees need to fully understand the information that a franchisor is obligated to provide in the FDD regarding the territory.

Understanding Required Disclosures - Item 11, Training

Franchisor training is one of the most important services a franchisee receives. The training program serves as the foundation for the franchisee operation. Once completed its virtually impossible for a new franchisee to be re-trained. Prospective franchisees need to fully understand this important franchisor activity.

Understanding Important Requirements in Item 11

Item 11 of the Franchise Disclosure Document provides information and disclosure relating to Electric cash registers, Computers and the Franchise Operations Manual. It’s important for prospective franchisees to understand what all of this means.

Required Disclosures: Advertising Issues

Prospective franchisees should understand their obligations to advertise their franchise products and services. In addition, recognizing how the franchisor administers the advertising fund is equally important.

Does the Massachusetts Fair Franchising Act Have Legs

Senate Bill 01843 introduced in Massachusetts by legislator Brian A. Joyce has significant implications for franchisors especially in light of the Coverall decision. Learn about this legislation and whether it has a chance to pass.

Required Disclosures: Pre-opening Obligations

Prospective franchisees should be fully aware of the support that they will receive from the franchisor. There is a difference between what the franchisor may promise compared to their contractual obligations. This article adds clarity to this important aspect of the franchisee-franchisor relationship.

Franchisor’s Required Disclosures: Franchisee’s Obligations

This article presents an explanation of the section in the Franchise Disclosure Document that presents the obligations of the franchisee under the franchise agreement. Franchise candidates should understand this important section in the disclosure document.

Required Disclosures: Financing

An increasing number of franchisors are offering some form of financing to prospective franchisees. There is a requirement that this information be disclosed in the Franchise Disclosure Document. This article explains the disclosure requirements for financing.

Required Disclosures: Estimated Initial Investment

Individuals looking to purchase a franchise need to be familiar with the Estimated Initial Investment in the Franchise Disclosure Document. This article presents a detailed description of this important item.

Disclosure Requirements: Other Fees

Prospective franchisees need to be aware of all of the fees they can pay to the franchisor. These fees are presented in the FDD and should be carefully reviewed by the franchise prospect.

The Universal Franchisee Bill of Rights

At a recent meeting the Coalition of Franchisee Associations ( CFA) ratified the Universal Franchisee Bill of Rights. It’s important that franchisors and franchisees understand what this document states.

Required Disclosures – Initial Fees: Can Provide Prospective Franchisees with Negotiating Information

Prospective franchisees should fully understand how much the initial franchise fee and is there an opportunity to negotiate lower fees. It’s also important to know if the franchise fee or any portion of the fee is refundable. Read more >>

Required Franchise Disclosures-Litigation

The litigation section in the Franchise Disclosure Document known as Item 3 can provide a good deal of information regarding the franchisor. Understanding this important section is an important part of your franchise evaluation process.

Protection After You Purchase: State Franchise Relationship Laws

After performing competent due diligence and buying a franchise, the franchisee may discover that the franchisor is not doing what they are obligated to do. However, there is recourse available to the aggrieved franchisee in certain States.

Does Your State Have Franchise Disclosure Laws? If Not, Then What?

Before searching for a franchise opportunity, it’s important to understand how the State you live in or will operate your franchise, regulates franchising. In terms of franchise regulations some States do very little while others have strong requirements. Read more >>

Post-Expiration Covenants Not to Compete

Franchisees need to understand the impact of certain provisions in their franchise agreement when the agreement is terminated. One of the most important post-expiration provisions is the non-compete. Learn how to deal with the non-compete issue.

US Supreme Court Decision Could Impact Franchisee Rights

A recent decision by the U.S. Supreme Court pertaining to a case involving AT&T could have an impact of class action claims brought by franchisees. Click here to learn more.

Unconscionable Clauses In Franchise Agreements

Prospective franchisees with the aid of their franchise attorney should challenge problematic clauses in the franchise agreement through pre-contract negotiation, rather than through the courts. This case validates the importance of having a qualified franchise attorney review the franchise contract before it’s executed.

Personal Guaranties in Franchise Agreements: to Sign or Not to Sign

Prospective franchisees should be aware of the personal guaranty and its implications. This article presents an overview of the personal guaranty and the reasons why caution is the word.

Avoid Becoming a Victim of Franchise Fraud (Part 2)

Franchise candidates should know how to use the information in Item 20 of the Franchise Disclosure Document. Contacting former franchisees and obtaining information may be more difficult than appears. Read more >>

Avoid Becoming a Victim of Franchise Fraud (Part 1)

Part one of this two part article provides insight into the importance of Item 20 in the Franchise Disclosure Document. Understanding Item 20 and how to use the information is an important component of a prospective franchisee’s due diligence.

Can a Franchisor Collect Future Royalties When a Franchise Agreement is Terminated?

Some franchisors have become much more aggressive in attempting to collect future royalties from franchisees that have been terminated. This article explains how franchisor claims for future royalties may or may not be awarded.

Precise Compliance With Notice Provisions Essential for Franchisors

This article by Craig R. Tractenberg of Nixon Peabody appeared in the Legal Intelligencer. He uses a recent judicial decision involving Domino’s Pizza to emphasize the importance of franchisor’s providing timely and proper notice to its franchisees and updating the operations manual to reflect operating changes.  Read it here >>

When Is a "License" Really a "Franchise"?

The Federal Trade Commission Franchise Rule, 16 C.F.R. 436.1 et seq., governs, at a federal level, disclosures which a "franchisor" must provide to each prospective franchise. There are also numerous state laws which may apply in any given situation. The discussion in this article will be limited to the requirements under the Franchise Rule.

Helpful Tips When Drafting or Revising a Franchise Agreement

New Franchisors as well as existing franchisors may need to consider changes to their franchise agreement. Before any changes are made its important to know what your competitors are doing. In addition, franchisors need to be aware of objections to certain provisions of the current agreement, made by prospective franchisees and their attorneys. Read more >>

KFC Franchisees Ad Council Receives Favorable Ruling Over KFC Corp.

The KFC advertising council can claim victory over franchisor KFC, regarding the final approval and control of domestic advertising programs. Read a summary of the case and ruling.

Five Key Tips for Franchising Your Business

Before deciding to franchise an existing business it’s important to answer some key questions. Veteran franchise attorney, Harold Kestenbaum, presents five tips that need to be considered before franchising a business.

Follow up to Rock Music Franchising Decision- Significant Reward in Favor of Franchisor

In a previous article on the FranchiseKnowHow web site, Craig Tractenberg of Nixon Peabody reported on a favorable ruling on behalf of the NP client, Paul Green School of Rock Music Franchising (PGSORM). Here's an update on that case.

Defining Sub-Franchising Once and For All

Sub-franchising is often a misunderstood term and is frequently confused with other franchise structures. This article puts any confusion to bed by providing the true meaning of the term.

Important Ruling for California Franchisors

Franchisors that conduct business in California need to be aware of issues regarding arbitration provisions. Read about this recent court ruling.

Franchisees File Law Suit Against Edible Arrangements

Edible Arrangements the franchisor that sells floral like designs from sculpted fresh fruit has been sued by a group of franchisees. Read further details of this story.

Century 21, NY Brokerage Franchisee to Litigate

Century 21 has been sued by its top producing New York area franchisee. The franchisee operates from fourteen offices. Read more about this recent development.

Choice of Law and Forum Clarified in Recent Franchise Cases

This article on choice of law and forum provides insight into non-compete provisions in franchise agreements as regards California law. Franchisors and franchisees will find the results of these recent decisions helpful.

The Franchise Contract: Understanding the Personal Guaranty

One of the most important provisions of a franchise agreement is the personal guaranty. It’s important for prospective franchisees to fully understand the reason why franchisors require this covenant and what the implications are in the event the franchisee has problems. When performing franchisor due diligence, keep this factor in mind.

Just How Exclusive is an Exclusive Territory?

It’s important for franchisees to understand what rights they have when they purchase a franchise and receive a specific territory. This article provides a concise explanation of what exclusivity means when it comes to a franchise territory.

Burger King Management and its Franchisees Battling for Six Years

An article by Richard Gibson of the WSJ describes the six year battle being waged by Burger King Franchisees and franchisor management.

The Importance of Using a Franchise Attorney

Before you sign the franchise agreement and write the check, make sure you’re using a franchise attorney to represent you and guide you along the way. Find out why it’s so important to use a franchise attorney and the benefits you’ll receive.

Negotiating a Franchise Agreement

When buying a franchise, you'll be expected to sign a franchise agreement. Don't assume that everything in the contract is set in stone. Often there is room for negotiation. Follow these steps to be sure you are comfortable with all the provisions before you sign the franchise agreement.

Why You Need A Qualified Franchise Attorney

If you think you can purchase that franchise of your dreams without the assistance and expertise of a lawyer who specializes in franchise law, think again. Learn the what, who, why, when, how and where's of finding and using the services of a qualified franchise attorney.

Franchise Renewal Agreements

Is your franchise renewal agreement a ticking time bomb? The renewal agreement you'll have to sign may be very different than your original agreement.  Here's what you should know about franchise renewal agreements.

Protect Your Franchise Territory

Exclusive territories in the franchising industry give franchisees assurance that a direct competitor won't open up from them just a couple of blocks away. But hold on -- your territory might not be as safe as you think it is. Find out the steps you need to take in order to help secure your franchise territory.

Employment Status of Franchisees

On March 23, 2010, a federal judge in Boston, ruled that a commercial cleaning franchisor was the “employer” of its Massachusetts franchisees. The franchisor was ruled to have violated the Massachusetts Independent Contractor Act by “misclassifying” the franchisees as “independent contractors.” This ruling could have serious repercussions to the franchising industry in Massachusetts and other States.

Read about this ruling in the Nixon Peabody Franchise Law Alert.

U.S. Supreme Court Ruling in the Hertz case Defines Principal Place Of Business

In a recent decision involving the Hertz Corporation, the U.S. Supreme Court ruled that, with few exceptions, a corporation’s principal place of business is the place where its officers control and manage the corporation’s activities.  As an example, corporations sued in California State Court but headquartered in another state can more easily move the case to federal court.  Read about the importance of the ruling in this article from the Nixon Peabody newsletter.

Area Developers Need to Register As A Franchise in Washington State

The Washington Court of Appeals recently (March, 2010) refused to review a lower court case in which a franchisee was allowed to rescind its franchise agreement because an area developer who had recruited the franchisee was considered by the state to be a sub-franchisor and had not registered in the state as a franchise. The refusal to review the case could have widespread negative impact on franchisors.  For details of the story, see the DLA Piper newsletter.