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3 ways franchisors may violate agreements with entrepreneurs

On Behalf of | Feb 6, 2024 | Complex Business Litigation

Franchisors have a lot to gain from a new franchise agreement. Each new contract executed with an entrepreneur means more exposure for the brand and more revenue for the company. Franchisees have a lot to gain as well. They have a turnkey business opportunity that comes with crucial support from an established company. They don’t have to develop their own customer base or products, as the business offering the franchise opportunity has likely already handled those details.

Instead, they need the resources to buy into a franchise and the follow-through to conform with franchise standards. Franchisees often benefit from certain types of support from the company’s offering franchise opportunities. How might a company fail to follow through with obligations to franchisees and negatively affect their operations as a result?

By not protecting territory

Franchise territory protections are crucial for someone trying to compete in a saturated market. A franchise territory is an area in which other franchisees cannot operate for a set amount of time after someone signs their agreement with the franchisor. Failing to uphold territory protections can diminish the returns on a franchisee’s investment and lead to unfair competition.

By not advertising locally

Part of what makes a franchise opportunity so valuable is how the company handles the planning of widespread marketing campaigns. They may handle national efforts while also engaging in local marketing as well.

Oftentimes, franchise agreements include clear terms regarding the investment the franchisor should make advertising within the local market. A failure to invest as promised could very easily result in franchisees having a hard time reaching consumers and achieving proper returns on the Investments made in their businesses.

By failing to properly train franchisees

The franchisee negotiating an agreement with an existing company and some of their key employees may require specialized training. Usually, training support comes directly from the franchisor. However, if the business does not provide adequate training, including continued training as operations shift, franchisees may find themselves at a marked disadvantage. It can quickly become very difficult to meet business standards when employees do not receive training on how to adhere to company practices.

When a franchisee reaches the conclusion that some of their business struggles have been caused by contract violations by a franchisor, it may become necessary to consider legal action. Enforcing or seeking to terminate a franchise agreement could help entrepreneurs frustrated by a lack of support from a franchisor.