5 Most Common Reasons for Disputes Between Franchisees and Franchisors

Franchise opportunities exist in almost every industry, from gyms to schools to auto repair facilities, with fast food, personal services and retail being some of the most popular. There are approximately 790,492 franchise establishments in the U.S. that support nearly 8.4 million direct jobs, $825.4 billion of economic output for the U.S. economy, and almost 3 percent of the Gross Domestic Product (GDP). Franchise and distribution agreements can create lucrative opportunities for entrepreneurs looking for a proven model within which to apply their business skills and ambition. However, disputes between franchisees and franchisors can arise for a variety of reasons, such as breach of contract, disagreements over territory or marketing, or changes to the franchise system. Some of the top reasons for franchisor and franchisee disputes to occur include:

1. Lack of Franchisor Support

In many cases, franchisees feel that the support they receive is less than what the agreed upon terms allowed. That support may have been steadier in the early months or years, and fizzled out with time, leaving the franchisee feeling forgotten or abandoned. Legal disputes can arise when the stress of the relationship brings the franchisee to bring up the legal documents both parties originally come to an agreement on, as viewpoints that were once in unison part.

2. Breach of Agreement

While franchisees may stray from their original agreement because they feel that it limits their creativity or decreases their profit, the franchisor may feel that the agreement is being breached altogether. The franchisor may want to establish a product that is reliable and well known for its consistency, with customers being able to purchase a known entity no matter what city or state they are in. While one side sees their non-compliance as an improvement of a faltering product, the other sees it as a direct breach of contract that threatens to damage their brand.

3. Royalties and Fee Disputes

Franchisees may see the fees and royalties they pay their franchisor as unjust and undeserved, especially if support has been lacking ever since the start up. Calls for reduced fees may arise if the franchisee feels they have not received equal support in the relationship, or if they fall on hard economic times. This, in the franchisor’s mind, is a direct breach of contract. 

4. Poor Communication on Both Sides Leads to Disputes

Both parties may have complaints when it comes to communication. The franchisor may feel that they are not being kept in the loop by the franchisee failing to submit reports and vital information, while the franchisee may feel left in the dark when it comes to the franchise’s direction as a brand or operational requirements.

5. Marketing

Both the franchisee and franchisor are likely responsible for paying the costs of marketing. However, the franchise is responsible for the creating the advertisements and branding of the company. Franchisees may feel that their money is not being wisely spent, that the marketing campaign is inept, or that they could do a better marketing job on their own. One of the main reasons that a franchisee looks to a franchise is because of the usually highly successful marketing the company has already done to create their strong branding.

If you are a franchiser or franchisee and have a dispute, it is imperative that you seek experienced and successful business franchise attorneys. Experienced Florida business lawyers are instrumental in resolving franchise disputes without the client incurring exorbitant litigation costs and can review the franchise agreement and provide guidance on how to proceed.