FRANCHISE LAW

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Hirzel Dreyfuss & Dempsey is a franchise law firm that represents franchisees. Our franchise lawyers work with franchise owners in Miami, Coral Gables, Fort Lauderdale, and throughout Florida, and we handle franchise litigation in courts and arbitrations across the United States.

Our franchise attorneys advise on franchise purchases and sales, counsel franchisees on the day to day operation of a franchise business, and handle franchise disputes in mediation, arbitration, and litigation.

How Our Franchise Lawyers Help Franchisees

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 experienced 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.

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

Franchise litigation is its own field. A franchise dispute lawyer has to read the franchise agreement, the disclosure document, the operations manual, and the course of dealing between the parties, because the answer is usually spread across all four. We have handled franchise litigation for franchisees in Florida state courts, in federal courts in Florida and in other states, and in arbitration.

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 discover that, in many instances, the renewal agreement will have different rights and obligations compared to the original franchise agreement.  Our 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 businesses 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.

Where Our Franchise Lawyers Practice

Our offices are in Coral Gables, in the Biltmore Hotel offices at 1200 Anastasia Avenue, and in Fort Lauderdale. We represent franchisees throughout South Florida, including Miami, Miami-Dade County, Fort Lauderdale, Broward County, and Palm Beach County, and we work with franchise owners across the state, including in Orlando and Tampa.

Our franchise attorneys appear in Florida circuit courts, in the United States District Courts for the Southern and Middle Districts of Florida, and in the United States Court of Appeals for the Eleventh Circuit. We also represent franchisees in franchise disputes in other states and in arbitration proceedings around the country.

Our franchise lawyers are fluent in Spanish and represent franchisees from across Latin America. Read this page in Spanish: Ley de Franquicias.

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 franchisor’s loyalty, good faith and fair dealing, and due care in the performance of the franchisor’s 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 franchisee’s 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 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 of 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 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 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.

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Common franchise problems, and where to start with each

Most franchisees who call us already know the outline of their problem. They received a notice of default. The franchisor approved a new location four miles away. Their buyer was rejected. A new fee appeared in the operating manual.

What they want to know is whether the agreement actually lets the franchisor do that, and what can be done about it. Below is a short answer to each, and a page with the detail.

The franchisor opened a location near mine

The answer usually turns on whether your agreement grants a territory. Most modern agreements do not, and where none was granted, Florida law generally will not imply one. Where the agreement, a rider, a development agreement or your disclosure document does say something about territory, there may be a real claim.

Read more about franchise encroachment and territorial disputes.

I received a notice of default or termination

Find the cure period first, because it is short and it has already started. Florida has no statute requiring a franchisor to have good cause, but Florida contract law does require the breach to be material, and that is a question of fact a jury can decide. Two things to avoid: stopping payment, and continuing to use the brand after termination.

Read more about franchise termination and non-renewal.

I have a buyer and the franchisor will not approve the sale

Everything depends on whether your agreement says consent will not be unreasonably withheld or gives the franchisor sole discretion. Either way the real work is usually negotiation rather than litigation, and it needs to happen before your buyer walks away.

Read more about transfer and sale approval disputes.

I cannot see where my advertising contributions go

The franchisor is usually not your fiduciary and the agreement usually gives it broad spending discretion. What can be examined is what the franchisor disclosed about the fund before you signed, because those disclosures are detailed and they can be checked against what actually happened.

Read more about advertising fund and marketing fee disputes.

Am I personally liable?

If you signed a personal guaranty, very likely, and usually for more than the unpaid royalties. There are real defenses, and there is one clause in many franchise agreements that is genuinely vulnerable.

Read more about personal guarantees and individual exposure.

Three things worth checking in your own agreement

Where your dispute will be heard, and under whose law

Look at the dispute resolution article of your agreement before you do anything else. Franchise agreements routinely require arbitration, in the franchisor's home state, under that state's law, and those clauses are generally enforced.

It is entirely possible to be a Florida franchisee running a Florida business whose dispute is arbitrated somewhere else under someone else's law. That affects what a claim is worth, what it costs to bring, and sometimes whether it is worth bringing. It can also take the Florida statutes discussed above off the table. This is the most consequential provision in most franchise agreements and it is the one franchisees read last.

How long do you have?

In Florida, a breach of a written contract generally carries a five year limitations period. Statutory claims and fraud claims generally carry four years. When a claim accrues is itself often disputed, particularly where the complaint is about something you were told years ago.

If your agreement tries to shorten those periods, and many do, Florida law voids a contract provision fixing a shorter period than the statute allows. That is worth knowing before you accept that you are out of time.

What to bring to a first meeting

The franchise agreement and every amendment. The disclosure document you received before signing, if you still have it, and the date you received it. Any development, area or sublease agreement. The guaranty. Any notice of default or termination. The last two years of profit and loss statements. And a short written timeline of what happened, in your own words, with dates.

If you do not have all of it, come anyway. Missing documents are ordinary, and most of them can be obtained.

Speak with a franchise attorney

The single most useful thing you can do is have a lawyer read your actual agreement. General information, including everything on this page, can only take you so far, because these disputes are decided by specific language that differs from system to system and from year to year within the same system.

A short conversation will usually tell you whether you have something worth pursuing, what it is likely to cost, and what to do first. If the honest answer is that the cost exceeds the exposure, we will tell you that too.

Consultations on franchise matters are free.

Request a free consultation or call 305.615.1617.

Hablamos español. Franquicias