As franchisee lawyers, we see a lot of bad franchisors. Most of these bad franchisors work on what we call the “North Korean Model.” That means what it says – the franchisor is the dictator, and the franchisees have no rights.
There are three characteristics of the North Korean Model:
- At the outset, it appears that there is a great opportunity to make LOTS of money. This opportunity often blinds franchisees, who will sign anything to get this opportunity.
- The documentation is really bad for franchisees. The franchise agreement gives all the rights to the franchisor and none to the franchisee. Sometimes the franchisor does not charge the franchisee for fees and other charges, but instead takes back a promissory note. The result is that the franchisee is indebted to the franchisor for tens or hundreds of thousands of dollars – an obligation that may well exceed any damages that the franchisee may have.
- The franchisor tosses the franchisee aside. It finds a pretext to terminate the franchisee and uses it to terminate the franchise agreement, leaving the franchisee with nothing. Then it goes and sells the franchisee’s business to someone else at a profit.
The North Korean Model thrives on churning franchisees – bringing them in with great promises, signing them up with big obligations, and then throwing them away.
The best defense against North Korean franchisors is to avoid them in the first place. But if you find yourself as a franchisee in one of these franchises, then give us a call. We may be able to help you get out and save your assets before you get thrown out! Contact us today!