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Beware of “help” with strings attached

| Jun 3, 2020 | Franchisees |

As franchisees try to navigate through the COVID-19 crisis, one more thing to beware of is “help” that comes with strings attached.  Many, if not most, franchisees are behind on bills, including royalty and fee payments to their franchisor.  Many of those will receive an “offer” from their franchisor that they will “defer” some of the fees until later—if you will just sign this “standard form” agreement.

Before you sign such an agreement, it is important that you understand what it does.  In many cases, franchisors are agreeing to such “deferrals” but including in the document language that purports to waive any and all claims the franchisee might have had against the franchisor.  It is possible that you have no such claims and signing them away does not matter.  However, very few franchisees really understand their own legal rights.  If you are presented with such an “opportunity”, it is important that you not sign until after you have had the proposed agreement and your legal situation reviewed by an experienced franchisee lawyer.

The most common legal claims we see, which franchisees seldom understand without some assistance, are claims of fraud in the inducement.  In other words, claims arising out of false or misleading statements made that caused you to invest.  More importantly, many franchisees do not understand that the information the sales people did not tell you during the sales process that resulted in you being mislead is very important.  Many simply do not understand what the law requires and, because it was left out, they have no idea it was left out.  By signing a release of claims today, you may be making it much more difficult (impossible in many states) to pursue those claims later if you then discover them.

The best way to proceed is to gather all of your franchise documents, all of the communications that the franchisor used in selling you on the investment “opportunity” and get them to a franchisee lawyer for review.  Plan to spend a little time and some money finding out what your rights are or may be in light of your circumstances.  It may be the best investment you make.

The current situation may give you leverage to avoid signing away your rights.  Franchisors are torn between wanting releases of claims and not wanting to lose outlets.  You may be able to, effectively, get the same deferral without signing anything.  You may find that you have strong claims and now may be a good time to pursue them.  Having your situation reviewed by an experienced franchisee lawyer may help you make the best decision.

Franchisors are businesses and businesses who have power over smaller businesses seldom do anything simply out of “the goodness of their hearts”.  They always want something in exchange.  The most valuable thing they can demand and that they are willing to “defer” fees for almost any time is a waiver and release of any and all claims.  Be sure you understand that trade-off and beware of “help” with strings attached.