There are various — and often creative — claims filed between franchisors and franchisees, and a great deal is often at stake. Accordingly, franchisees benefit from working with an experienced legal team from the moment they know that litigation might be possible. By taking early action, the negative effects of litigation can often be mitigated.
At the New York law offices of Einbinder & Dunn, LLP, we have extensive experience representing franchisees in litigation. Our experienced trial lawyers handle many different claims filed by franchisees against franchisors, including:
- Earnings claims: Franchisors may, under certain circumstances, disclose to franchisees information from which the potential sales, costs, income or profit of a franchise may be ascertained, but that information must be accurate and it must be contained in the Franchise Disclosure Document. Earnings claims can be either an actual statement or a projection of earnings. When the information is not properly disclosed or when the information is intentionally misleading, we may be able to assist franchisees in taking legal action to recover their investment.
- Misleading initial investment costs: Franchisors are also legally required to disclose the costs to start up a franchise in the franchise offering prospectus, including the costs of real property, equipment, inventory and additional funds. Failure to disclose this information accurately can mean significant losses for franchisees. Accordingly, they can take legal action. Depending on the situation, Einbinder & Dunn, LLP, may be may assert a claim on behalf of a franchisee.
- Competition by franchisor/encroachment: When a franchisor takes actions that violate the franchise agreement, such as selling franchise locations to competing franchisees who are located in close proximity to each other, it may be possible for the franchisees to take legal action. At Einbinder & Dunn, LLP, we may be able to file a claim for breach of the franchise agreement if there is a provision in the agreement that is intended to prevent encroachment. If there is no such clause, we may allege breach of the covenant of good faith and fair dealing implied in the franchise agreement.
- Failure to train or support: Franchisees expect to be trained in the particular business of the franchise and to be supported by the franchisor in their efforts to sell the franchise products/services. When franchisors fail to follow through on their promises, we may be able to pursue litigation on behalf of the franchisee.
- Modification of the system: When franchisors unilaterally modify the franchise business system, it can wreak havoc on a franchisee's operations. If a franchisor significantly changes the business, the unexpected expenses imposed on franchisees may be deemed breaches of the implied covenant of good faith and fair dealing. Einbinder & Dunn, LLP, can assist in asserting a claim on this basis.
- System standards: Franchisors have the right to require franchisees to toe the line, but when a franchisor is inflexible, demanding strict compliance with system standards without any lenience, the franchisee who faces threats of default or termination for minor infractions or inadvertent errors might sue. If your franchisor takes this step, we can assist you.
- Advertising fund misuse: Franchisors typically require franchisees to contribute to a common advertising fund, which is supposed to be used for the common good of the franchisees. However, this is not always the case. When a franchisor fails to use the money for the proper purposes, franchisees may bring claims of breach of contract, depending on the situation. Einbinder & Dunn, LLP, has substantial experience in representing franchisees in these types of matters.
- Termination/non-renewal: Franchisees typically invest substantial amounts of time and money in acquiring, developing and operating their franchises. Case law and in some states franchise "relationship laws" may offer protection from arbitrary franchise termination or non-renewal. If a franchisor terminates the relationship without good cause, it may be possible to take legal action and we can provide effective representation in such a case.
- Transfer/assignment: Case law and some state statutes limit the right of the franchisor to control transfers of franchises or the assets of franchised businesses. When a franchisor blocks a transfer or assignment, it may be possible to commence an action against the franchisor, seeking preliminary and/or permanent injunctive relief, damages and attorneys' fees. Einbinder & Dunn, LLP, has represented franchisees in these types of matters.
Contact Our New York and Nationwide Franchisee Attorneys
For questions or additional information about Einbinder & Dunn's legal services for franchisees, please contact us by filling out our contact form. You can also call 866-490-4909 or 212-391-9500 to speak with our attorneys and experienced support staff.
Julie Lusthaus was interviewed on WVOX 1460 AM by Marsha Gordon, President and CEO of The Business Council of Westchester about issues in franchising.
