Many people who are interested in running their own businesses consider purchasing a franchise. A potential franchisee must enter into a franchise contract with the company owner or franchisor to begin operating the business. These contracts are often long, complex, and filled with one-sided boilerplate that favor the franchisor. And because they are likely to govern any disputes between the parties, you need to understand your duties and potential remedies under the contract.
The Federal Trade Commission’s (FTC) Franchise Rule is federal rule that governs franchise agreements and disputes. 16 C.F.R. § 436. It defines acts or practices that are unfair or Deceptive. A key part of the Franchise Rule is the Franchise Disclosure Document (FDD), which contains certain information that a franchisor must disclose to any potential franchisees at least 14 days before any sale. For example, the franchisor must disclose the amount of the initial fees that a franchisee must pay before opening the business, the specific geographic location or any limitations on the franchise, a summary of the franchise contract provisions, and detailed financial statements.
The Franchise Rule, however, does not provide franchisees with a private right of action. Rather, only the FTC has the power to enforce it, and historically it has been far from aggressive in doing so. Arizona does not have its own franchise disclosure law, though it does have a business opportunity rule that requires State registration and certain written disclosures in connection with the sale of a business opportunity. A.R.S. §§ 44-1271, et seq.
Although the Franchise Rule may not do much for a franchisee, franchisees have many common law and statutory remedies available to them in connection with typical franchise disputes, including disputes or issues arising the following:
- Validity or existence of a franchise agreement
- Termination or non-renewal of or changes to a franchise agreement
- Enforcement of any geographical restrictions or restrictive covenants
- Bankruptcy of the franchise owner and/or transfer of the company
- Misuse of trademarks
- Inadequate support from a franchisor, such as insufficient training or advertising
Williams Mestaz, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit, such as a franchise dispute. We have the tools to help you through this stressful time and get the resolution that you want. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Mestaz, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.