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Franchise Law/Franchise Litigation

Franchises are a form of business where the corporate headquarters does not own and operate each location for its company. Take McDonald's for an example: The large corporate entity, which trades on the stock exchange under the ticker symbol MCD, does not own and operate every McDonald's restaurant.

Instead, McDonald's has franchise owners who operate each restaurant and follow very strict guidelines on the products they are allowed to use, the pricing of products, design of the restaurant, and even employee training protocol. This ensures a consistent product and experience at all of McDonald's restaurants.

Examples of franchises are available for nearly every business type imaginable; from restaurants, to hotels, to mechanics, to senior care franchises, tutoring services, and gyms.

Deciding whether to join a franchise is a major decision and you should carefully review the Franchise Disclosure Document (FDD) from the franchisor and consider competitor franchises.

Franchise agreements are 5-20 year contracts. An attorney review of the Franchise Agreement and the Franchise Disclosure Document is highly recommended.

A review of the document is well worth it since you are likely to pay thousands per year for a franchise for a long time. Contact Attorney Nick Heimlich if you would like to discuss reviewing a proposed Franchise Disclosure Document.

Franchise Disclosure Documents (FDD) in California provide a wealth of information regarding a franchise if you are considering purchasing a franchise. An FDD will usually contain a general overview of the history of the franchise including a description of the business, business model, and key executives. You will also generally be informed about how long the franchise has been in business, the number of locations and the financial statements for the franchise. It may also contain information about the financial performance of the franchise business owners. The Franchise Agreement or contract under which the Franchisor will offer franchises is also included. You should be aware that you have a right to review the Franchise Agreement and can ask for changes to the Franchise Agreement. However, just because you can ask does not mean that the Franchisor will be interested in making changes to the Franchise Agreement for you. The Franchisor’s willingness to make changes will depend on many factors, including the size of the Franchisor, how many units you plan on opening, your financial backing, your business background, the uniqueness of your proposed location, the number of locations near your proposed location and many other factors.

Another important consideration is whether you can get any protected territory for your franchise. Some Franchisors will provide a certain territory in which they will not license a particular franchise to another person (such as a 5 or 10 mile radius). The size of the territory (if offered) will vary depending on the franchise, the population density, the type of service or product, and customer preferences.

Attorney Heimlich has advised franchise owners with businesses in San Jose, Ca, and other cities in Santa Clara County. Additionally, Mr. Heimlich has advised franchise owners/prospective franchisees on franchises in a variety of industries, including hotels, restaurants, health care related franchises (such as home health care), services franchises such as daycare providers or tutoring, grocery/food stores.

The Franchise Disclosure Document has many required items and should be carefully reviewed by anyone either in or considering a franchise. The franchise disclosure document will provide background information about the franchise’s business history such as biographies of the main officers. In looking at the officers, a franchisee should ask themselves if the persons have been in the same industry as the franchise? How long? What was their role? How successful was the company that they came from?

Another point is the actual history of the franchise, namely its start dates, number of locations. Franchisees should carefully consider whether the franchisor has a sufficient track record and brand recognition. A new Franchisor may be very enthusiastic but may lack the standardized processes to assist people in getting their new franchise up and running.

There are also disclosures on many other areas, such as financial statements, contract terms, lists of franchisees, litigation or lawsuits, franchisor trademarks and estimated fees and costs to operate and start the franchise.

If you are in Santa Clara County, such as San Jose, Santa Clara, Los Gatos, Palo Alto or Campbell and are looking to have a franchise review, then contact Nick Heimlich.

Should you already be in a franchise and wish to work on exiting the franchise, Attorney Heimlich can review your contract and discuss your options with you. Some franchise contracts provide time periods where exit is relatively easy. Attorney Heimlich has sometimes been able to negotiate resolutions of the franchise based on dissatisfaction of the franchise owner or breaches of the franchise agreement. While there is no guarantee of a simple resolution to a franchise dispute, Mr. Heimlich works with clients to try to obtain a resolution based on their objectives. Some disputes can end up in arbitration or court, and Mr. Heimlich has also helped represent clients in those franchise disputes as well.

Frequently Asked Questions for Franchises.

I’m considering a franchise, why should I speak with an attorney?
Buying a franchise is a big step because you are either buying an existing business or starting up a new business.  Starting a business can be one of the most rewarding decisions of your life, but also one to take precautions for because of the risks involved.  An attorney will help you with many aspects of the franchise and general business advice.
An Attorney may help with many of the following:

  • Franchise Disclosure Document Review.
  • Review multiple Franchises for consideration.
  • Franchise Agreement Review and modifications.
  • Advising on Business licensing.
  • Advising on corporate formation (Corporations, Limited Liability Companies, S-Corp).
  • Advise on how to minimize liabilities and maintain the corporate protection when operating your business.
  • Lease Agreement Review.
  • Employee Advising on Wage-Hour issues.
  • Review Trademarks of the proposed franchise to verify their registration.

I’m having issues with a franchise I’m operating, but I’m stuck in the contract.  What can I do?
An attorney can review your situation and issues you may be having with your franchisor.
An attorney will help with these items:

  • Review your Situation and listen to your concerns or problems.
  • Discuss ways to try to address your situation either yourself or with your franchisor.
  • Review your Franchise Agreement for any breaches by the Franchisor that might allow you to exit the Franchise.
  • Review your liability if you decide to cease operating the franchise agreement.
  • Negotiate with your franchisor if issues cannot be resolved.
  • Initiate or respond to lawsuits regarding breach of your franchise agreement.

Some Franchisors realize that if you are not a strong representative for the franchise that can hurt their brand and will either work with you to fix problems or allow you to exit the franchise even before your contract is up.  Alternatively, they sometimes allow someone else to take over your franchise and even buy you out of your franchise.  You have options and discussing those with an attorney will help you realize that continuing to operate a franchise that is not making money is not a good business plan.

If you are in Santa Clara County, such as San Jose, Santa Clara, Los Gatos, Palo Alto or Campbell and are looking to achieve a franchise termination, then contact Nick Heimlich.