Franchisee Litigation Against Franchisors

Posted by: Rod Kurtz on July 11, 2007

Opening up your own business is exciting, but if you get caught up in that excitement and fail to carefully review all legal documents and understand your obligations, you could find yourself in court down the road. Franchise agreements have been carefully drafted and reviewed by the franchisor’s lawyers, and you should assume that the document reflects the franchisor’s best interests.

The obvious goal in franchising is to run a successful business where you make significant money. Occasionally things do not go as planned. Maybe the industry is not a good match for your skills and background or you are not making the money you thought you would or did not start out with enough working capital to get you through those first couple of years. You may feel that the franchisor is not fulfilling its obligations. For instance, maybe it did not provide adequate training or disclose "hidden" fees and expenses or is not doing as much advertising as it said it would. If your reason for taking a franchisor to court is the latter, you have a stronger case. If you decide you do not like franchising or are struggling financially you may end up in even deeper financial woes.

Read the full story at AllBusiness.com.

Reader Comments

Carol Cross

August 14, 2009 1:57 PM

Good comments and warning but I disagree that the law requires franchisors to disclose all "material" information as indicated in this article.

Unfortunately, franchisors, themselves, are not required under the law to disclose ANY information concerning unit success or failure or unit profitability when selling franchises to the public.

This is said to be the fatal flaw of the FTC Rule that in effect protects franchisors from charges of fraud in arbitratio and the courts from those who unknowingly buy high risk and unprofitable franchises.

Those who are interested should read "Franchising Fraud -- the continuing need for reform" published by the American Business Law Journal on 01 Jan 2003 for an understanding of the flaw in the regulatory rule.

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