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Lagarias & Boulter L.L.P. has represented franchisees and dealers in hundreds of different franchise and distribution systems including:

Arco, Athlete’s Foot, Avis, Baskin Robbins, Blimpie's, Burger King, Century 21, Chrysler, Choice Hotels, Denny’s, Dominoes, Duxiana, Liberty Tax, Mail Boxes Etc., McDonald's, Quiznos, Sears, 7-Eleven, Service Masters, Snap-on Tools, Shred-it, Subway, 1-800 Radiator, and many more.

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Roberts/McKay v C.R. England

Latest Blog Entries.

Friday, September 30, 2011 7:13:26 PM
The Case for More, Not Less, Franchisee Protection
Current franchise laws and regulations do not go far enough to protect the interests of franchisees against often times overreaching franchisors.
Friday, September 30, 2011 7:10:28 PM
Support the Arbitration Fairness Act of 2009 (House Bill 1020)
Federal appellate courts continue to put their full weight behind arbitration and erode the flexibility of judges to set aside or at least limit one-sided arbitration schemes and results.
Friday, September 30, 2011 7:08:48 PM
Welcome to Franchisee Law Blog
Lagarias & Boulter, L.L.P. devotes itself to keeping up-to-date on issues important to the franchising community and to franchisees in particular.

Franchise Law

Franchising 101

This section provides a general overview of franchising. But the statements here will not apply in all situations. Your particular franchise agreements and issues should accordingly be reviewed by an experienced franchise attorney before you undertake any actions.

 
What is Franchising?
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties.
 
There are primarily two forms of franchising:

  • Product/trade name franchising
  • Business format franchising
In the simplest form, a franchisor owns the right to the name or trademark and sells that right to a franchisee. This is known as product/trade name franchising. The more complex form, business format franchising, involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.
 

The Cost of Franchising

In exchange for obtaining the right to use the franchisor's name and assistance, you may pay some or all of the following fees:

  • Initial franchise fee and other expenses. Your initial franchise fee, which may be nonrefundable, may cost several thousand to several hundred thousand dollars. You may also incur significant costs to rent, build, and equip an outlet and purchase initial inventory. Other costs include operating licenses and insurance. You also may be required to pay a grand opening fee to the franchisor to promote your new outlet.
  • Continuing royalty payments. You usually will have to pay the franchisor royalties based on a percentage of your weekly or monthly gross income. You often must pay royalties even if your outlet has not earned significant or any profits during that time. In addition, royalties are usually paid for the right to use the franchisor's name, so even if the franchisor provides few promised support services, you may still have to pay royalties for the duration of your franchise agreement.
  • Advertising fees. You may have to pay into an advertising fund. Some portion of the advertising fees may go for national advertising which sometimes may not cover your market area.

Franchise Agreements

The agreements themselves are generally long, usually written by franchisor lawyers, and are often difficult to understand. Given that this may be one of the most important transactions you will ever make, consider hiring an experienced franchise attorney to help you understand your rights and obligations.


Typical Controls Exercised by the Franchisor

To ensure uniformity, franchisors typically control how franchisees conduct business. These controls may significantly restrict your ability to exercise your own business judgment. The following are typical examples of such controls:

  • Design or appearance standards. Franchisors may impose design or appearance standards to ensure customers receive the same brand experience at every outlet. Some franchisors require periodic renovations or seasonal design changes. Complying with these standards may increase your costs.
  • Restrictions on goods and services offered for sale. Franchisors usually restrict the goods and services offered for sale. For example, as a restaurant franchise owner, you may not be able unilaterally to add popular items to your menu or delete items that are unpopular. Similarly, as an automobile muffler repair franchise owner, you might not be able to perform other types of automotive work, such as brake or electrical system repairs.
  • Restrictions on method of operation. Franchisors may require you to operate in a particular manner. For example, the franchisor might require you to operate during certain hours, require employee uniforms, and abide by certain accounting or bookkeeping procedures. These restrictions may impede you from operating your outlet as you deem best. The franchisor may also require you to purchase supplies only from an approved supplier, even if you can buy similar goods elsewhere at a lower cost.
  • Restriction of sales area. Franchisors may limit your business to a specific territory. While these territorial restrictions may ensure that other franchisees will not compete with you for the same customers, they could impede your ability to open additional outlets or move to a more profitable location. 


Terminations and Renewal

You can lose your franchise if you breach the franchise contract. You can be subject to termination if, for example, you fail to pay royalties or abide by performance standards and sales restrictions. If your franchise is terminated, you may lose your investment.

Franchise contracts are usually for a limited time and there is often no guarantee that you will be able to renew it or that the terms of any renewal will be the same as your current agreement. After that time, the franchisor may decline to renew or renew only if certain conditions specified in your franchise agreement are met. Also be aware that the franchisor may be able to raise the royalty payments or impose new design standards and sales restrictions on renewal.


Franchise Disclosure Laws

Franchising is regulated by law to a certain extent. Certain disclosures on the offer or sale of a franchise must be made that will give you some information. It is up to you to evaluate the information. An experienced franchise attorney can assist you in this endeavor.


Franchise Relationship Laws

Although California has a franchise relations act, the statute deals mostly with rights on non-renewal and/or termination. For the most part, the rights of the parties will be established by the franchise contract alone. We recommend all prospective franchisees hire an experienced franchise attorney to review the proposed franchise offering and agreement.

See our Investigating Franchise Offerings page for more information.