It’s Business And It’s Personal

Due to precautions related to COVID-19, remote consultations via teleconferencing, Facetime or Skype are available. Please contact our office to discuss if this option is appropriate for your situation. Let’s all stay healthy and safe.

Franchise disputes still a big source of business litigation

| Oct 7, 2014 | Business Contracts & Disputes |

One area of business that is ripe for disputes and litigation, including in North Carolina, is in the area of franchise law. The contractual relationship between franchisors and franchisees continues to be a source for alleged heavy-handed franchisor actions. For example, a franchisor enters into a franchise agreement giving the local franchisee the right to use the name and products within certain set parameters. What has been happening more and more, and causing a rising tide of business litigation, is that the franchisor at some point decides that the franchisee is not following the policies and practices demanded of the franchise agreement.

The franchisor then notifies the local business that it no longer can operate under the franchise due to its violations of the agreement. These business disputes, therefore, are essentially breach of contract confrontations. However, there has apparently been an abusive pattern by some big franchisors to unfairly disrupt their franchisees and close them down without good cause. Consequently, several state legislatures have gotten involved to attempt to make it harder for franchisors to cancel franchise agreements.

One state legislature recently passed a law making it tougher on franchisors to cancel such agreements. However, the Governor, Jerry Brown of California, vetoed the bill. He stated that he was not against reform of franchise laws, but that the parties should have a more balanced approach by negotiating the legislative terms.

That kind of legislation has not been pursued in North Carolina, so that the main remedy between warring parties to a franchise agreement here is a civil action for breach of contract. Before exposing itself to business litigation, however, a business that is purchasing a franchise should make sure upfront that the contract is protective and flexible enough to prevent unilateral, selfish actions by the franchisor. The strongest way to assure protection in that respect is to have a seasoned business law practitioner negotiating with the other attorney on the local business’s behalf.

Source: Star-Telegram, “Brown vetoes bill to expand franchisee rights”, , Sept. 29, 2014

Archives

FindLaw Network