In a continuing effort to highlight important new court decisions, this time regarding vicarious liability of a franchisor for the actions of its franchisee, you need to be aware of Patterson v. Domino’s Pizza. In the Patterson case, which had been dismissed by the trial court, the California Court of Appeal reversed, saying: “a franchisor’s actions speak louder than words.”
Franchise site BlueMauMau just released a list of the 25 worst franchise investments-without even asking the question of whether such extraordinarily bad results give rise to a duty to disclose high failure rates to those who are buying a franchise.
Every franchisee, at the beginning, goes through a “honeymoon” period that can last a few years. That phase can have a very dangerous side-effect of causing you to be unable to successfully make a claim if the franchisor did something wrong. It is very important when buying a franchise that you watch the statute of limitations.
Franchisors are not required by the Federal Trade Commission or by most state statutes to provide prospective franchisees with information about how well their current franchisees are doing financially or how well their company-owned outlets are doing.
Every prospective franchisee wants to identify the best franchise opportunities for them. Every good franchisor wants to know how they can create a successful franchise.
Buying a franchise in the same industry you already have a business in can be a very risky decision. Let’s say you have a current customer base that generates you $10,000 a month in gross revenue, of which $3,000 drops to the bottom line. You receive a solicitation from a very charming franchise “consultant” offering you a franchise with a “known name”, “group buying power”, “proven systems” and all the training an support you could dream of. Should you buy?
Perhaps it is a response to a growing perception that franchise agreements have been growing increasingly lopsided-just a tiny step above the indentured servitude of the middle ages-or perhaps it is pandering to the franchisees who showed up in Sacramento in droves to testify, but the Assembly of the California legislature today took one step toward passing a state fair franchising law.
Some people attempt to minimize franchise disputes by saying “it’s just business” or “it’s only money.” These people have never been in a business dispute.
Many franchisors include an arbitration clause in their franchise agreements to govern franchise dispute resolution. This requires both parties to take any disputes to arbitration instead of to court.
Buying a franchise may be the biggest financial investment you ever make. When it works, you have the chance to own and operate your own business with the added advantage of a partnering with an established company with name recognition, a successful business model, and high quality products or services.
