There are many reasons a franchisee may need a franchise lawyer. Elsewhere on this website we have discussed review of franchise agreements before entering into a franchise agreement and other advice we may provide.
Now, we are going to discuss franchisees in dispute and how investing in a franchise lawyer may be a very good investment in a franchisee's future.
We are often called upon to assist franchisees who want to leave a franchise system or are being legally pursued by the franchisor.
It can be a very stressful and scary time where a franchisee feels they have no answers.
Investing in a franchise lawyer, someone who has the expertise and experience in franchising law, to advise you of your rights may provide you with answers you did not know were available. A franchising lawyer may be able to strategise an outcome for you which will minimise the legal fallout and the adverse effect that may have on a franchisee's life, family and future.
CASE STUDY 1
We were recently involved in a case where a franchisee had left a franchise system believing they had been released from the franchise agreement by the franchisor. This was not the case. The franchisor was pursuing them legally for franchise fees they would have paid to the end of the term of the franchise agreement plus other costs they had incurred.
When the franchisee called us they were understandably upset. They had been to another lawyer who, not being a franchise lawyer, had not progressed their case and a debt collector had been appointed to pursue the franchisee for the debt.
The franchisee was at the point where it had decided it would just enter into payment terms with the franchisor and pay off all of the money the franchisor claimed was owed.
We took our client's instructions and noted a number of things, including:
1. the debt collector was pursuing the wrong entity. The debt collector was pursuing the franchisee's company but the franchisee had entered into the franchise agreement as an individual;
3. the franchisor had made a number of representations to the franchisee to entice them to enter into the franchise agreement. These representations were not true and the franchisor had no grounds to believe they were true; and
2. in our opinion, the franchisor had acted unconscionably and had misled and deceived the franchisee in a number of ways. For example, the franchisor had sat down with our clients and agreed to terminate the franchise agreement. The franchisor did not tell our client it would have to pay the franchise fees to the end of the term. Our clients believed the matter was at an end until they received an invoice from the franchisor to pay it a lot of money in order to secure a release from the franchise agreement.
What we did
We took the following action:
(a) we wrote to the debt collector and advised they had the wrong party and advised our client would be defending the proceedings and counter-claiming; and
(b) we wrote to the lawyers for the franchisor and outlined all of the behaviour which infringed the Competition and Consumer Act together with breaches of the contract by the franchisor and other matters.
Within 24 hours we were advised by the debt collector that it had withdrawn from acting for the franchisor and it would not be pursuing our client.
Within 5 days the franchisor offered to release our client from any claim provided our client released the franchisor from any claim it had.
Our client did not have to pay a cent to the franchisor and was released from the franchise agreement.
What we can learn
We need to start by stating we can't guarantee this will happen in your case.
However in this case, by engaging a franchising lawyer, the matter was able to be quickly and conveniently settled because the franchising lawyer understood the law governing franchising in Australia and could isolate the legal issues quickly and cost effectively and assist in resolving those issues.
CASE STUDY 2
In another recent matter, our franchisee client was suffering great financial hardship in the operation of its franchised business. It had been suffering this loss for some time and it could not turn the franchised business around to stop the financial haemorrhaging.
The franchisee had for many months been trying to negotiate with the franchisor to have it released from the franchise agreement. However the franchisee owed the franchisor alot of money for ongoing franchise fees it had not paid and also for an initial loan given by the franchisor to enable the franchisee to purchase the franchised business.
Those negotiations were not progressing and the debt was growing. In addition to the debt owing the franchisor, the franchisee also owed rental to the landlord and other money to suppliers.
When the franchisee called us it was ready to close the doors and face individual bankruptcy (they had given personal guarantees) and a liquidation or winding-up of the franchisee company.
What we did
We worked through each debt with the franchisee and worked out the risks associated with each debt and what would happen if the franchisee didn't pay.
We undertook negotiations with each creditor including the franchisor. These negotiations centred around payment plans, agreements to waive part of the debt owing and so on.
Within 2 weeks an agreement had been reached with the franchisor to waive part of the debt and accept a smaller sum in full and final payment. As the franchisor was the largest creditor this placed us in a better position to negotiate with other creditors.
The franchisee and its directors avoided bankruptcy and liquidation.
What we can learn
Sometimes it is very difficult to negotiate for yourself. This is especially so if you have a franchisor who seems to have all of the power, you are stressed and/or panicking and if you do not know your rights or the options available to you.
Franchising lawyers deal with matters like this all of the time and it may be worth the investment in engaging a franchising lawyer to assist you.
Again, there are no guarantees this will be the outcome with your matter.
Sometimes it feels as though all hope is lost. Seeking the help of a professional experienced in franchising law may open your eyes to options you did not know were available to you. Sometimes you need someone else to be your voice to negotiate an outcome for you.
Whatever your reason you should not hesitate to contact us to discuss your matter to see if we are able to assist.
We are happy to have a chat on the phone for up to 20 minutes at no cost to you to discuss your case.
Please feel free to check back regularly as we update our case studies.