October 25, 2021
Franchises are often sold to prospective franchisees on the grounds that they will “own their own business.” For example, one franchisor advertises to prospective franchisees by stating that franchising “provides you with the opportunity to own your own business.” Another franchisor’s website states: “We highly encourage our franchise candidates to visit with our franchisees to learn directly from the source what it’s like to own your own business!” Even the Small Business Administration states that franchising allows a franchisee to “be your own boss.”
The secret that is often kept from enthusiastic prospective franchisees, however, is that the franchise business he or she is purchasing is actually quite different from “owning your own business” or “being your own boss.”
In fact, a franchise owners’ day-to-day operations are governed by the standards and specifications set by the franchisor. While franchise owners will likely have control over hiring and firing employees, in terms of the marketing, messaging, products sold, hours of operation, etc., franchisees generally have very little, if any, discretion or control.
Wait, so the Franchisor Is Calling the Shots?
Some franchise systems, for example, divert all leads to a call center run by the franchisor, creating a disconnect between the franchisee and the customer. This can result in franchise issues – if the franchisor’s call center is not run correctly or call center employees are not properly trained, franchisees will likely have little, if any, ability to bring about change and their businesses suffer as a result.
Additionally, if an independent business owner’s business fails, he or she can shut down without much consequence. He or she may have lease obligations and other outstanding obligations to lenders and vendors, but this is likely the extent of ongoing obligations. If a franchise business owner fails and shuts down, however, he or she could be subject not only to these problems inherent in shutting down any business, but also to the possibility of having to pay lost future royalties to the franchisor.
Can You Sell a Franchise Business?
A franchisee’s ability to sell or pass down his or her business is also limited by the franchisor’s requirements, transfer fees, and approval of the transferee. Approval is also usually conditioned on the purchaser entering into the “then-current form” of franchise agreement, which may materially differ from the agreement the franchisee originally entered into. Considering this, franchisees should think of a franchise purchase as a lease of a business opportunity, rather than ownership of a business.
Get Help Understanding Your Franchise Agreement
Recent History Provides an Example
The issue of how much control franchisees have arose a few years ago in the Craft Beer Cellar franchise system. Craft Beer Cellar is a craft beer retail franchise system. It appears that the franchisees had a fair amount of discretion over the products they carried, but this changed in late 2016 when the franchisor issued a new policy, prohibiting its franchisees from carrying certain products, and allowing them to carry products only from approved breweries. Some franchisees responded to the new requirements, stating that their businesses will suffer because certain unapproved products have strong consumer bases and are among some franchisees’ top-selling brands.
What happened with Craft Beer Cellar serves as a reminder that the franchisor’s ability to require that franchisees only sell approved products is almost universally incorporated into franchise agreements. Thus, franchisees are often faced with the hard truth that they do not have the type of control they would if they did “own their own business” — they cannot account for local tastes and local competition, cannot sell products that may make financial sense to the franchisee, and have no right to deviate from the franchisor’s specifications.
Franchising is about uniformity, not the needs, preferences, or success of individual franchise owners. In other words, a person that owns his or her own business is concerned only with the performance of his or her own business. When a person owns a franchised business, the franchisor’s concern is with the brand in the aggregate, and what the franchisor deems good for the brand may not align with particular franchisees’ interests.
Methods for Franchisees To Assert Control
There are ways franchisees can assert more control over their franchised businesses, which include the following:
- Asserting any contractual rights they may have;
- Forming independent franchisee associations to negotiate with franchisors;
- Leveraging claims they may have against the franchisor to exact more control over their businesses; and
- Independently negotiating with the franchisor.
Before undertaking any of the steps detailed above, it is important for franchisees to speak to franchise attorneys to determine the best strategy for taking more control over their businesses.
Working With Franchise Attorneys
Franchise law can be complicated. Much of the legal jargon is hard to understand, and if you don’t fully understand the law, you are at risk of being taken advantage of. If you want to find a group of franchise lawyers that you can trust, contact Garner, Ginsburg & Johnsen P.A. today. From needing legal assistance with franchise breach of contract issues to wanting to get out of a franchise, our experts are ready to help.
