FranX: What Happens When You're Sued

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

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

A franchise advisory council can be your canary in the coal mine. Embrace your FAC and use it as an early warning system and as a tool to improve your system-wide communications.

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.

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.

Unhappy franchisees are usually over-leveraged franchisees with misaligned expectations. Use your FDD to align expectations, including a clear understanding of 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.

Can you make money as a McDonald’s zee?

There’s no better way to test a brand than during a pandemic in the heart of NYC. The MQ team adjusted from fast-casual sit-down to carry-out and delivery. 2020’s challenges have validated the MQ multi-unit development strategy, which is focused on larger-square-footage production restaurants supporting less expensive and smaller-foot-print satellite locations. Multi-unit franchisees should be evaluating this brand.

After seeing how the coffee franchise supported her friend, a BIGGBY® franchisee, throughout the pandemic, the former coffee shop manager decided to open up her own business with the fast-growing brand.

Michelle Duncan-Wilson is no stranger to the coffee industry. The former barista and coffee shop manager built a career out of her love for java. Now, she’s leveraging her passion for coffee to open her own coffee shop with BIGGBY® COFFEE, the 10-plus-unit coffee franchise out of Cincinnati.

Duncan-Wilson was introduced to the fast-growing coffee franchise by a friend, a BIGGBY® owner who opened her second location just before the pandemic arrived last year. Duncan-Wilson was impressed with her friend’s success throughout 2020 and she says she saw in BIGGBY® a franchisor that cares about its franchisees and provides a wealth of support and resources when times get tough. So, she decided to become a franchisee herself.

Are you connecting with them?

When you first signed that franchisee, did you think they would end up in a place where you would threaten to sue them?

Backcast, people. Learn from the moments that got you to the point of saying you are going to sue.

Now, threatening a suit doesn’t always lead to a lawsuit. C&Ds are more likely. Just ask a lawyer — the only people who win lawsuits are the lawyers, and a bad settlement is better than a bad lawsuit.

So, bottom line: Stop getting into situations where anger drives you to a place of wanting to sue. Button up the process, terms of engagement and expectations. That way, it’s just business, bro.