QSR Magazine features an article by Daniel Smith that reflects on a decade of franchisee introduced litigation against franchisors and provides important insight. What can be learned from these mistakes?
Whether it’s started by the internationally renowned franchisor or the ma-and-pa franchisee, litigation stands an unwelcome event in a relationship desperately needing trust, respect, and the singular, shared aim of bottom-line success. Over the last decade, however, a litany of franchisor-franchisee disputes have made their way into the courtroom, proving to be a time- and cost-consuming process littered with stress and frustration for both sides.
While at first glance the franchisee-franchisor relationship might appear to be a creature of contract, wherein the franchisor can exert control with its unilateral rights to govern, reality has painted a different portrait far more based in the colors of collaboration and responsiveness. Successful franchise relationships result from transparency and honesty running through all phases of the relationship—often well beyond any contractual stipulations—and, furthermore, a shared recognition that each needs the other to achieve productive results.
“The franchisor-franchisee relationship [is] really a complex partnership of balanced mutual dependence,” says Florida attorney R. Alan Higbee, a noted expert on franchise matters. “The key to most franchisor-franchisee relationships, like most partnership relationships, is trust and communication.”
From some of this decade’s most notable court cases, important lessons can be gleaned that highlight and emphasize the importance of finding a sincere and honest middle ground that keeps the ultimate focus on food, customers, and profitability.
“At the end of the day, the common lesson learned from all of the disputes … is that franchisors need to find a way to maintain a level of trust and communication with their franchisees that prevents major disputes from arising in the first place,” Higbee says.
A Lesson Learned:“Franchisors desiring to make changes to their systems by asking their franchisees to make significant additional capital expenditures are best served by answering the ‘why are these expenditures necessary and appropriate’ question of their franchisees. Not with a ‘because we can’ response, but rather with a ‘because this investment will likely give you a reasonable return on your investment’ response backed up with the results of successful testing of the proposed capital expenditures at the store level. Absent that testing and successful ROI experience, franchisors should make the business decision to not try and impose such capital expenditures on their franchisees, even if their lawyers advise them they have the legal right to do so.”Minneapolis-based attorney J. Michael Dady, a franchise law specialist
The in depth article takes a look at these 5 celebrated cases: Quiznos – Misrepresenting ‘Material Facts’; The Dairy Queen Case: The Necessity of Modernization?; The Burger King Case: Dictating Franchisee Lift; The Little Caesars Case: Protecting the Brand’s Long-Term Health; Noble Roman’s Pizza & Raving Brands: Feeling Duped; The Green Burrito Case: Kickbacks and Competition