We all live in a litigious society where people mostly prefer to deal with the problems through lawsuits. But mainly, all reasonable franchise attorneys suggest that people should take litigation as their last resort to problem resolution.
They also state that in maximum lawsuits, no party emerges as a winner of the case. Maybe, one party wins, but the amount spent on litigation is much higher.
So, both parties should sit together and find out the root cause and various steps to avoid litigation. Generally, franchise litigation can arise due to the following reasons:
Over-Promised
Sometimes, one party makes promises under the terms of the franchise agreement but fails to fulfill them. As a result, it causes another party to file a lawsuit.
For instance, the Franchisor fails to do the business according to the terms and conditions of their agreement. In addition, they also fail to pay the set royalties and violate the common laws or non-compete provisions.
In those cases, they initiate litigation themselves.
There might be cases where the Franchisor can not support an agreed initial business setup. It can not follow all the set terms of the agreement. In that case, a franchisee may initiate litigation.
Generally, franchisee lawsuits state that the Franchisor verbally promised something that later did not materialize.
Wrong Practices
There may be chances where one party thinks that the other party is unexpectedly performing business, which is harmful. For example, if the Franchisor opens units close to the Franchisee’s place resulting in loss to the Franchisor, they might initiate litigation.
Franchisors may start litigation to prevent unanticipated doings of franchisees that they think are harmful to their brand, such as dressing employees in a seductive manner to draw more customers attention.
Termination Disputes
Sometimes, a franchisor terminates a franchisee without having the legal right to do it. As a result, it makes a franchise termination “wrongful.” So, the Franchisee files a lawsuit against the Franchisor.
Antitrust Violations
The federal antitrust laws and the Sherman Act prohibit franchisors from entering into the following contracts:
- The contract that forces franchisees to make more payment for the products and services than market forces
- The contract restricts Franchisee’s potential to offer reasonable prices to their customers.
If the Franchisor violates any of the above, this may lead to a lawsuit.
Liquidated Damages
Suppose the Franchisee breaches the Franchisee Agreement by disclosing the trade secret of a Franchisor’s to a competitor. In that case, the Franchisee will pay the liquidated damages to Franchisor for the breach.
If Franchisee does not pay back the amount, this will cause litigation.
Now the question arises what can anyone do to avoid the litigation? Follow the instructions below:
Research: First, ensure that you conduct a thorough investigation of any franchise before investing. It is a simple yet vital process. So, review all the documents carefully and pay special attention to the disclosed litigation history.
Get Everything in Writing: Mostly, good franchise companies let you sign a compliance questionnaire before giving you a franchisee. It may happen that sometimes they promise something but that is not in the contract.
So, it is better to execute the franchise agreement till you get the promise in writing.
Accept Responsibility: If you see that everyone is progressing except you. Then look in the mirror and accept your mistakes. Instead of blaming others, get humble and ask for help from the Franchisor.
Closure
No franchisor wants to get involved based on litigation or failure. So, do everything to avoid both the events. Ensure that you research while starting any business to prevent ending up in litigation.