Documents are important in any business venture. The typical business owner might use partnership agreements, operating agreements, buy-sell agreements, and contracts with vendors or clients. People who operate franchises are no exception. The franchisee and franchisor sign one document that is critical to their relationship – the franchise agreement. But in a breach of franchise agreement situation, can the franchisor sue the franchisee?
The answer? It depends on the facts and what language the agreement contains.
Why the Franchise Agreement Is So Important
All parties to an agreement need to understand how their relationship works. The franchise agreement spells out the details of the franchisor-franchisee relationship. In fact, it’s a contract between the franchisor (the person selling the franchise interest) and the franchisee (the person buying into the franchise). Both parties have responsibilities and protections. A breach of franchise agreement means that one party has not complied with the contract.
Franchise agreements usually contain some or all of the following provisions:
- Applicable state laws. A franchise agreement signed in Florida might be operating under another state’s laws. For example, the franchisor might headquarter in Colorado and rely on Colorado state laws for some breach of franchise agreement issues.
- Fees. In addition to the original fee to buy into the franchise, the franchisee might be responsible for royalties, advertising expenses, and numerous other fees.
- Term. How long with the franchise agreement be in effect? Franchise agreements often include provisions about renewal rights, termination of the contract, and cancellation of the agreement.
- Limitations and restrictions. Franchisors might limit the franchisee’s products, services, distribution area, and other issues.
- Some franchisors tell franchisors exactly how to run their outlet.
- Training. Franchisors may require the franchisee to use their materials for employee training.
- Insurance. The franchisee might have to buy certain types of insurance. Also, the franchisor might require a certain amount to be in place at all times.
- Conflict resolution. Franchise agreements usually contain provisions stating how the parties will handle disputes.
When one party fails to honor its contractual obligations, the other party has options. For example, franchisors might sue franchisees that commit the breach of franchise agreement. However, the parties should contact an experienced attorney to discuss the facts of their situation.
How Can Franchisors and Franchisees Resolve Their Conflict?
The answer should be contained in the franchise agreement itself. In some cases, the franchisor and franchisee might agree to use alternative dispute resolution methods like arbitration or mediation to settle their breach of franchise agreement issue.
So, a franchisor can sue a franchisee for breach of franchise agreement, but they may have to go through other steps first. If negotiation, arbitration, and mediation have not worked – depending on whether the franchise agreement requires alternative dispute resolution – either party could file a lawsuit against the other.
Again, the franchise agreement terms control. We strongly encourage you to have an attorney review any agreement before you sign. Provisions that may seem innocent to you could have a far-reaching, negative effect.
Are You Being Sued for Breach of Franchise Agreement?
If in a legal battle of any kind, an experienced business lawyer can help you understand how the law applies to your situation. As a franchisee, you have rights – and obligations. Getting out of the situation with the best results depends on receiving sound legal advice.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.