Franchise Litigation

What is Franchise Litigation?

Some lawyers work in the area of franchise law, which primarily involves creating and registering the documents that franchisors need in order to legally sell franchises. There are also a lot of trial lawyers – attorneys who actively perform court trials. But an attorney who is experienced in franchise litigation is actually pretty rare.

Franchise litigation is the specialized area of the law that deals with lawsuits between franchisors and franchisees. These can arise in a number of scenarios. From the franchisee’s perspective, litigation against the franchisor may be justified when it turns out the franchisor has made misrepresentations in the process of selling the franchise. It may also arise when the franchisee believes that the franchisor is not following the franchise agreement, or is extracting unfair fees and charges. From the franchisor’s perspective, litigation normally comes from franchisees failing to pay royalties, or from former franchisees violating non-compete covenants.

Franchisor vs. Franchisee

I have had the opportunity to represent both sides in various lawsuits. Each has its own challenges. Representing a franchisor can be an uphill battle, as most state laws are written in a manner that gives substantial leverage to franchisees (who are deemed to be the weaker party deserving more legal protection). Judges and juries are also more inclined to sympathize with the franchisee. The key to representing franchisors is to emphasize the value provided by the franchisor and the contractual terms the parties agreed to at the beginning of their relationship. It also requires strong discovery requests drafted by an attorney who understands franchising.

On the other hand, representing a franchisee can be a challenge because normally the franchisor was the party who drafted the franchise agreement. Obviously, then, the contract will have been written in a one-sided manner that provides maximum protection for the franchisor, who has been in the business long enough to know where its vulnerabilities are. Also, the franchisor will usually have more resources than the franchisee. In order to prevail, it is critical that a franchisee hire an attorney who understands the complexities of the franchise laws and knows how to exploit the provisions that are tilted in favor of the franchisee. It is also critical that the attorney be prepared to go all the way to trial, because many franchisors take a hard line in refusing to settle cases, afraid that too many settlements will invite a flood of litigation. In other words, you cannot count on a quick and easy settlement.