But She's Doing It. - Can Franchisors Treat Franchisees Differently?

franchise-fightYou bought into a franchise system because you wanted be a part of the recognition, stability and systemization of a proven business model. You understand the value of a hotel room in San Francisco having the same quality and overall feel as a hotel room under the same chain in Washington D.C. You like knowing that out-of-town visitors will come to your restaurant because you serve the exact same delicious milkshake that they can get 500 miles away.

So, what do you do, then, when your fellow franchisees start using rougher towels, or take the milkshake off of the menu? Now all of a sudden some of the inherent value in your franchise is gone. Your hotel chain is seen as declining in value, and out-of-towners stay away because they think that you, too, have taken their favorite milkshake off of the menu.

You complain to the franchisor, of course, only to find out that they ok'd the change. What now? Are you stuck losing business over things out of your control and within the control of the franchisor?

The answer in these types of situations, like most others in the legal realm, is "it depends." Most franchise agreements give franchisors broad rights to grant variances to franchisees based on individual circumstances, local preferences, and the like. And fundamentally this makes sense-inherently what works in one location won't necessarily work in all others across the country. Plus, it is important to keep in mind that you, too, may want to seek certain exceptions to the norm one day in order to enhance your chances for success.

However, many franchise agreements and some state lawsfr, in one form or another, also impose obligations on the franchisor (at least to a certain extent) to make good faith efforts maintain the value of the system and the relevance of the brand. In addition, from a franchise relations (and litigation avoidance) perspective, franchisors will generally want to keep the best interests of the system as a whole in mind when making decisions about possible exceptions for individual outlets. Of course, maintaining the integrity of the system may also mean granting variances in order to keep outlets in business and/or avoid more-costly disputes.

As a result, broadly speaking, franchisors have the right treat different franchisees differently. This is required by the very nature of the franchise concept, and when done properly it can (at least theoretically) be better for all parties involved. However, few rules are absolute, and that is clearly the case here. Franchisors can get into trouble for differential treatment based on discriminatory classifications, and when undertaken in clear violation of express contractual obligations. In addition, under certain circumstances, franchisors may be deemed to have waived their right to require uniform compliance-thereby allowing franchisees to make otherwise-unauthorized modifications.

Franchisees harmed by changes in their counterparts' operations - and those seeking variances themselves - are often well-served to raise the issue with their franchisor, and attempt to reach a mutually-satisfactory resolution early on before things spiral out of control.

This article is provided for informational purposes only, and does not constitute legal advice.

Jeff Fabian is a lawyer who represents prospective franchisees in evaluating and negotiating new franchise opportunities. Jeff also represents franchisors in franchise compliance and trademark matters. Visit www.fabianlegal.com for more information, and follow Jeff on Twitter @jsfabian.

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