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Hirzel Dreyfuss & Dempsey combines sophisticated legal knowledge, strategic planning, and the years of experience in franchise law and business disputes for individuals and companies.
Our primary goal is offer sophisticated legal advice in conjunction with franchise purchases and sales, legal counseling for the operation of a franchise business, and franchise disputes (whether in mediation, arbitration, or in a court of law).
How Hirzel Dreyfuss & Dempsey Can Help...
Hirzel Dreyfuss & Dempsey’s attorneys provide a broad range of legal services to franchisees.
Our services cover all aspects of a franchisee’s legal needs (from the initial decision and negotiations over the purchase of a franchise location, to legal advice concerning the operation of a franchise location, to the decision to sell or close a franchise location).
If a franchisee is facing a legal dispute, or if a franchisee has been wronged, we provide a complete suite of legal services to help resolve the dispute through negotiation, mediation, arbitration, or litigation.
Assistance with Purchasing a Franchise
If you are thinking about buying a franchise, we can provide you with expert legal assistance to help you through the process.
Becoming a franchisee can be a very rewarding and satisfying experience. However, before you commit substantial capital, time, and effort to a long-term relationship with a franchisor, you should have an experienced franchise attorney help you with the process. We can attempt to save you time and money, and to avoid potential hidden dangers before they arise.
Hirzel Dreyfuss & Dempsey offers experienced guidance to prospective franchisees who are evaluating a franchise opportunity by:
helping clients to better understand the contents of the Franchise Disclosure Document ("FDD”);
evaluating and assisting clients with respect to the terms of a Franchise Agreement;
identifying red flags and loopholes typically exploited by franchisors; and
consulting our clients about the legal and practical issues presented with respect to franchisor-franchisee business relationships so that our clients can ask the right questions.
Hirzel Dreyfuss & Dempsey’s experienced franchise attorneys give prospective franchisees an advantage by providing a detailed analysis of the relevant legal franchise documents (including the FDD, the proposed Franchise Agreement, and any related agreements). Our attorneys will identify potential problems with the terms of the franchise documents, summarize the rights and obligations of the franchisee and franchisor, highlight important dispute resolution procedures, and scrutinize the franchise documents for provisions which might need to be addressed in future discussions with a franchisor.
After completing the detailed analysis, our attorneys will then provide a consultation, either in person or over the telephone, to discuss any issues with the client that were discovered during the analysis. Lastly, the firm will negotiate on your behalf the terms of the franchise agreement directly with the franchisor. The entire analysis, follow-up client consultation, and negotiation is provided for a single fixed fee, so you will know exactly what you will receive and exactly how much it will cost before you decide to hire our firm. In most instances, the fixed price for the detailed analysis and follow-up consultation will be $2,500.00.
After the analysis and consultation, Hirzel Dreyfuss & Dempsey’s attorneys are available to provide further legal advice and assistance to franchisees before they finalize the purchase of a franchise business. For example, our attorneys can provide ongoing advice during negotiations with a franchisor and, if desired, can even participate directly in such negotiations to advance the interests of our franchisee clients.
Acquiring an existing franchise, as opposed to starting a brand-new franchise location, is another option sometimes available to a prospective franchisee. Although the total investment required is often much higher, acquiring an existing franchise location often has such benefits as an existing customer base and active revenue streams. With an existing franchise location, a prospective franchisee can literally “step into the shoes” of the former owner. However, it is just as important, if not more important, for a prospective franchisee to obtain assistance from experienced franchise attorneys before committing to an acquisition. Hirzel Dreyfuss & Dempsey can assist by analyzing the relevant assignment agreements and can also help in the negotiation process.
FIGHTING FOR FRANCHISEES IN LEGAL DISPUTES
Opening a franchise business location can be exciting and rewarding. Even under ideal situations, legal disputes can arise to put a franchisee’s rights and profits at risk. Under less ideal situations, a franchisee can find him or herself confronted with a less honorable franchisor looking to take advantage of its franchisees.
Identifying and assessing active or potential disputes can potentially save franchisees from massive losses in time, productivity, and expenses. This is why it is important for franchisees to consult with experienced franchisee attorneys whenever the specter of a legal dispute arises.
The obvious goal in franchising is to run a successful business where you make significant money. Occasionally things do not go as planned. Maybe the industry is not a good match for your skills and background or you are not making the money you thought you would or did not start out with enough working capital to get you through those first couple of years. You may feel that the franchisor is not fulfilling its obligations. For instance, maybe it did not provide adequate training or disclose “hidden” fees and expenses or is not doing as much advertising as it said it would. If your reason for taking a franchisor to court is the latter, you have a stronger case. If you decide you do not like franchising or are struggling financially you may end up in even deeper financial woes.
From the Editors of allBusiness (link to article).
We at Hirzel Dreyfuss & Dempsey are often retained by franchisees who complain that their franchisors or suppliers are not doing what they said they would do. In some instances, the problem arose from mere laziness on the part of the franchisor. In other instances, confusing changes to the management or ownership of the franchisor created the problem. Sometimes, the franchisor or supplier’s refusal to comply with their obligations is inexplicable.
When a franchisee is faced with a franchisor or supplier who refuses to comply with its obligations, it is essential that the franchisee seek out legal advice from experienced franchise attorneys. Hirzel Dreyfuss & Dempsey’s experienced franchise attorneys can help in such situations. In some instances, enlisting the assistance of a franchise attorney can bring a favorable resolution without escalating the dispute. If a franchisor or supplier refuses to be reasonable, alternative dispute resolution is sometimes available (i.e. mandatory mediation).
If a franchisor or supplier is unwilling to engage in any reasonable efforts to amicably resolve a dispute, the attorneys of Hirzel Dreyfuss & Dempsey are ready, willing, and able to defend our clients rights in arbitration or litigation.
LEGAL CLAIMS AGAINST FRANCHISORS BY FRANCHISEES
The attorneys of Hirzel Dreyfuss & Dempsey have represented franchisees in numerous legal disputes involving franchisors who violated agreements or broke the law.
Sometimes franchisors refuse to comply with their obligations under the Franchise Agreement. If a reasonable business arrangement cannot be reached, it may be necessary to bring legal action against difficult franchisors for breach of contract.
Some of our franchisee clients have come to us for help in situations where franchisors or suppliers have blatantly lied to their franchisees. Franchisees who have been damaged by the lies and deception of franchisors have legal rights that need to be protected. If you believe that you were mislead or lied to by a franchisor or supplier, the attorneys of Hirzel Dreyfuss & Dempsey can help you obtain justice.
In other instances, our firm is retained by a franchisee who has been harmed by a franchisor in a way that does not fit with a traditional “cause of action.” Unbeknownst to many businessmen and businesswomen, there are important laws at both the State and Federal level that make some deceptive and unfair business practices by franchisors or suppliers illegal. Unfair conduct by a franchisor could be in violation of the Federal Trade Commission’s Franchise Rule, the Florida Deceptive and Unfair Trade Practice Act, or other similar statutes. Thus, if you feel that you are being treated unfairly by a franchisor or supplier, please contact us to talk about it.
Legal Assistance with operating a Franchise Business
Hirzel Dreyfuss & Dempsey offers continuing legal support to our clients concerning the operation of their franchise business locations through our “Virtual-In-House" general counsel services.
Our “Virtual-In-House” counsel services cover the day-to-day legal issues of running a business, such as legal consultation on business issues, debt collection, contracts and document review to help protect the company, contractor-supplier disputes, hiring and firing employees, commercial real estate and equipment leases, and employee confidentiality issues.
Each plan is tailor-made to fit the needs of each business. Depending on the needs or desires of each client, the plans can be flat-rate, monthly-rate, or hourly-rate.
Additionally, Hirzel Dreyfuss & Dempsey can help franchisees organize a franchisee association. Franchise associations serve a variety of functions. Franchise associations enable franchisees to talk to one another; they give franchisees strength in numbers; they provide a platform for buying cooperatives; and they are a launching point for group communications with the franchisor. Contact us to speak with one of our franchise attorneys who can help you with setting up a franchisee association.
Renewing a Franchise BusinesS LOCATION
Franchisees who are considering the renewal of a franchise business should have an experienced franchise attorney help them with the process.
It is important for franchisees to start evaluating a potential renewal well before the initial franchise agreement period expires because franchise agreements often place time limits on renewals. Our attorneys help franchisees that are considering a renewal to better understand the legal implications of the renewal agreement.
Many franchisees are surprised to discovery that, in many instances, the renewal agreement will have different rights and obligations compared to the original franchise agreement. Our expert franchise attorneys can help franchisees by analyzing the relevant renewal agreements before they are signed so as to help our clients make sure that they are not inadvertently agreeing to potentially harmful terms.
ADVICE WHEN SELLING OR CLOSING A FRANCHISE LOCATION
Sometimes franchisees, for a variety of reasons, decide to sell their franchise business location. In other instances, some franchisees may decide that it is in their best interests to try to close a franchise business location.
Selling or closing a franchise business location is not a simple matter. The terms and provisions of the Franchise Agreement, including any renewals or amendments to the Franchise Agreement, can make the sale or closure of a franchise location incredibly complex.
Hirzel Dreyfuss & Dempsey can help franchisees navigate through such complex situations. Our experienced attorneys can assist franchisees in understanding the benefits, costs, and potential pitfalls involved in selling or closing a franchise location. You, as a franchisee, have likely expended a large amount of time and money on your franchise business location — don’t put your investment at risk without first seeking the advice of an experienced franchise attorney.
Helping Small Businesses expand through Franchising
We also help small business that are interested in expanding their business through franchising.
This includes preparing the mandatory Franchise Disclosure Documents ("FDDs") in compliance with various federal and state franchise laws; providing the continuing legal services necessary to maintain the protection of a franchisor's brand; and assistance with a franchisor's ongoing legal compliance obligations.
The Franchisee Bill of Rights
The right to an equity in the franchised business, including the right to meaningful market protection.
The right to engage in a trade or business, including a post-termination right to compete.
The right to the franchisors loyalty, good faith and fair dealing, and due care in the performance of the franchisors duties, and a fiduciary relationship where one has been promised or created by conduct.
The right to trademark protection.
The right to full disclosure from the franchisor, including the right to earnings data available to the franchisor which is relevant to the franchisees decision to enter or remain in the franchise relationship.
The right to initial and ongoing training and support.
The right to competitive sourcing of inventory, product, service and supplies.
The right to reasonable restraints upon the franchisors ability to require changes within the franchise system.
The right to marketing assistance.
The right to associate with other franchisees.
The right to representation and access to the franchisor.
The right to local dispute resolution and protection under the laws and the courts of the franchisee's jurisdiction.
A reasonable right to renew the franchise.
The reciprocal right to terminate the franchise agreement for reasonable and just cause, and the right not to face termination, unless for cause.
Prepared by The American Association of Franchisees & Dealers
At Hirzel Dreyfuss & Dempsey, we strongly believe in the protection of franchisees' rights and interests. However, the rights advocated by the American Association of Franchisees & Dealers within the The Franchisee Bill of Rights are not automatically provided to franchisees - such rights must be won and protected.
Franchisees must always be ever vigilant of threats to their rights. Many franchisors attempt to limit the rights of franchisees through the use of complicated legal agreements and other similar tactics. The attorneys at Hirzel Dreyfuss & Dempsey can help franchisees identify potential threats to their rights and financial interests. Having an attorney on your side when evaluating complex legal documents, or when negotiating with a franchisor, can often make a substantial difference.
Once a franchisee has started to operate a franchise business, threats and challenges can arise quickly and unexpectedly that could jeopardize a franchisee's interests. An experienced franchise attorney can help franchisees navigate through, or around, such challenges.
Examples of such challenges are far too numerous to list here, but for some examples of the disputes which can arise, you can read this story from the Franchise Times.
More Information About Franchise Law
Franchising is the practice of the right to use a firm's business model and brand for a prescribed period of time. The word "franchise" is of Anglo-French derivation—from franc, meaning free—and is used both as a noun and as a (transitive) verb.
For the franchisor, the franchise is an alternative to building "chain stores" to distribute goods that avoids the investments and liability of a chain. The franchisor's success depends on the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.
Additional information about franchising is available from the International Franchise Association's "Franchising 101" website.
Fees and Contract Arrangement
Three important payments are made to a franchisor: (a) a royalty for the trademark, (b) reimbursement for the training and advisory services given to the franchisee, and (c) a percentage of the individual business unit's sales. These three fees may be combined in a single 'management' fee. A fee for "disclosure" is separate and is always a "front-end fee".
A franchise usually lasts for a fixed time period (broken down into shorter periods, which each require renewal), and serves a specific territory or geographical area surrounding its location. One franchisee may manage several such locations. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees. A franchise is merely a temporary business investment involving renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. It is classified as a wasting asset due to the finite term of the license.
Franchise fees are on average 6.7% with an additional average marketing fee of 2%
A franchise can be exclusive, non-exclusive or "sole and exclusive".
Although franchisor revenues and profit may be listed in a franchise disclosure document (FDD), no laws require an estimate of franchisee profitability, which depends on how intensively the franchisee "works" the franchise. Therefore, franchisor fees are typically based on "gross revenue from sales" and not on profits realized. See remuneration.
Various tangibles and intangibles such as national or international advertising, training and other support services are commonly made available by the franchisor.
Franchise brokers help franchisors find appropriate franchisees. There are also main 'master franchisors' who obtain the rights to sub-franchise in a territory.
According to the International Franchise Association approximately 44% of all businesses in the United States are franchisee-worked.
Risk Shifting
Franchising is one of the only means available to access venture capital without the need to give up control of the operation of the chain and build a distribution system for servicing it. After the brand and formula are carefully designed and properly executed, franchisors are able to sell franchises and expand rapidly across countries and continents using the capital and resources of their franchisees while reducing their own risk.
There is also risk for the people that are buying the franchises; failure rates are actually higher for franchise businesses than independent business startups, and it's important for today's franchise-seekers to be aware of that fact.
Franchisor rules imposed by the franchising authority are becoming increasingly strict. Some franchisors are using minor rule violations to terminate contracts and seize the franchise without any reimbursement.
Obligations of the Franchisee and Franchisor
Each party to a franchise has several interests to protect. The franchisor is involved in securing protection for the trademark, controlling the business concept and securing know-how. The franchisee is obligated to carry out the services for which the trademark has been made prominent or famous. There is a great deal of standardization required. The place of service has to bear the franchisor's signs, logos and trademark in a prominent place. The uniforms worn by the staff of the franchisee have to be of a particular design and color. The service has to be in accordance with the pattern followed by the franchisor in the successful franchise operations. Thus, franchisees are not in full control of the business, as they would be in retailing.
A service can be successful if equipment and supplies are purchased at a fair price from the franchisor or sources recommended by the franchisor. A coffee brew, for example, can be readily identified by the trademark if its raw materials come from a particular supplier. If the franchisor requires purchase from his stores, it may come under anti-trust legislation or equivalent laws of other countries. So too the purchase things like uniforms of personnel and signs, as well as the franchise sites, if they are owned or controlled by the franchisor.
The franchisee must carefully negotiate the license and must develop a marketing or business plan with the franchisor. The fees must be fully disclosed and there should not be any hidden fees. The start-up costs and working capital must be known before the license is granted. There must be assurance that additional licensees will not crowd the "territory" if the franchise is worked according to plan. The franchisee must be seen as an independent merchant. It must be protected by the franchisor from any trademark infringement by third parties. A franchise attorney is required to assist the franchisee during negotiations.
Often the training period - the costs of which are in great part covered by the initial fee - is too short in cases where it is necessary to operate complicated equipment, and the franchisee has to learn on their own from instruction manuals. The training period must be adequate, but in low-cost franchises it may be considered expensive. Many franchisors have set up corporate universities to train staff online. This is in addition to providing literature, sales documents and email access.
Also, franchise agreements carry no guarantees or warranties and the franchisee has little or no recourse to legal intervention in the event of a dispute. Franchise contracts tend to be unilateral and favor of the franchisor, who is generally protected from lawsuits from their franchisees because of the non-negotiable contracts that franchisees are required to acknowledge, in effect, that they are buying the franchise knowing that there is risk, and that they have not been promised success or profits by the franchisor. Contracts are renewable at the sole option of the franchisor. Most franchisors require franchisees to sign agreements that mandate where and under what law any dispute would be litigated.
Basic U.S. Franchise Regulations
Isaac Singer, who made improvements to an existing model of a sewing machine in the 1850s, began one of the first franchising efforts in the United States, followed later by Coca-Cola, Western Union, etc. and by agreements between automobile manufacturers and dealers.
Modern franchising came to prominence with the rise of franchise-based food service establishments. In 1932, Howard Deering Johnson established the first modern restaurant franchise based on his successful Quincy, Massachusetts Howard Johnson's restaurant founded in the late 1920s. The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee. The growth in franchising accelerated in the 1930s when such chains as Howard Johnson's started to franchise motels. The 1950s saw a boom in franchise chains in conjunction with the development of the U.S. Interstate Highway System and the growing popularity of fast food.
In the United States, the Federal Trade Commission has oversight of franchising, rather than the U.S. Securities and Exchange Commission. The FTC administrates oversight via the FTC Franchise Rule.
The FTC requires that the franchisee be furnished with a Franchise Disclosure Document (FDD) by the franchisor at least fourteen days before money changes hands or a franchise agreement is signed. The final agreement is always a negotiated document setting forth fees and other terms. Whereas elements of the disclosure may be available from third parties, only that provided by the franchisor can be depended upon. The U.S. Franchise Disclosure Document (FDD) is lengthy (300-700 pp +) and detailed (see Uniform Franchise Offering Circular (UFOC) for elements of disclosure), and generally requires audited financial statements from the franchisor in a particular format, except in some circumstances, such as where a franchisor is new. It must include such data as the names, addresses and telephone numbers of the franchisees in the licensed territory (who may be contacted and consulted before negotiations), estimate of total franchise revenues and franchisor profitability.
Individual states may require the FDD to contain their own specific requirements, but the requirements in state disclosure documents must be in compliance with the federal rule that governs federal regulatory policy. There is no private right of action of action under the FTC rule for franchisor violation of the rule, but fifteen or more of the states have passed statutes that provide this right of action to franchisees when fraud can be proven under these special statutes. The majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees, some of which the U.S. Supreme Court has dealt with.
There is no federal registry of franchises or any federal filing requirements for information. States are the primary collectors of data on franchising companies and enforce laws and regulations regarding their presence and their spread in their jurisdictions.
Where the franchisor has many partners, the agreement may take the shape of a business format franchise - an agreement that is identical for all franchisees.