Episode 22: Why you should not sue your franchisees

Avoid franchisee lawsuits…

Sometimes they are inevitable... other times they are completely avoidable. Following the year of the pandemic, business closures, and small business challenge… it’s time to re-think your franchise agreements and legal relationships with your franchisees…

How can you make the lives of franchisee lawyers more difficult and less profitable?

1. Enlist Your Franchisees A franchise advisory council can be your “canary in the coal mine”. Embrace your FAC and use it as a tool to improve your system communication and as an early warning system.

2. Be Aware of State Franchise Laws No matter what they say… state specific franchise relationship laws may trump the terms of your franchise agreement. Be aware of the states that you operate in and the supplemental rights afforded to your franchisees.

3. Rethink Your Franchise Agreements Do you need all of the provisions in your franchise agreements? Maybe and, most likely, yes...but can you tone them down? Absolutely. And, if you overreach in your franchise agreements, important provisions like your non-compete and confidentiality covenants may not be as enforceable as you think they are. Make sure your restrictive covenants are fair, balanced, and enforceable.

4. Leverage Your FDD Unhappy franchisees are usually over-leveraged franchisees with misaligned expectations. Use your FDD to align expectations including a clear understanding about franchisee marketing obligations, the dollars that need to be spent to make the phone ring, and a supercharged Item 19 that creates clarity as to income replacement expectations.

The most successful lawsuits are the avoided ones.