Franchise Law and Litigation
The Law Offices of Kevin J. Dolley provides high-quality legal representation to franchisees. The Firm represents franchise owners and partners in litigation over, among other things, contract disputes, franchise agreement disputes, and employment-related claims by employees. Our attorneys work closely with franchise management and representatives in order to develop legal solutions that best serve their business interests and goals. We understand relevant federal and state laws regarding franchises (including but not limited to the Missouri Franchise Act and Federal Trade Commission (“FTC”) regulations), and use this understanding to provide our clients with the best available options to address and overcome business disputes. In that vein, our Firm has successfully represented franchise owners in many state and federal courts, as well as in arbitration.
Franchise Agreement Law
We assist current and prospective business owners in reviewing franchise agreements and the terms, conditions and requirements of the agreements. Obtaining comprehensive legal counsel regarding such agreements is critical to the ongoing success of a franchise, as such agreements are often written in a one-sided fashion in favor of the franchisor. Our Firm prides itself on providing such detailed counsel, as it helps franchisees fully understand their rights and obligations and puts franchisees in the best position possible in relation to common disputes that arise during the course of a franchising relationship. This counsel also assists entrepreneurs and businesses in evaluating, at the outset, whether potential franchise opportunity is worth pursuing and/or on what proposed terms it may be worth pursuing. Whether you are interested in buying or selling all or part of a franchise, our legal knowledge and experience in representing franchise owners can prove invaluable.
We also have experience representing franchisees in many types of disputes with franchisors. While franchise agreements are intended to spell out the respective rights and obligations of franchisees and franchisors, the nature and scope of these rights and obligations are not always clear as drafted in such agreements, especially when unique or unanticipated disputes or circumstances arise that lead to one party wanting to terminate or modify the franchise arrangement. In such situations, it is critical to understand the laws and rules that are potentially applicable to how the parties should address or handle such an issue or dispute.
Franchise law is governed by a mixture of federal and state statutory and regulatory schemes. The genesis of the federal regulatory scheme occurred in 1971 when the FTC began a study that lead to the promulgation in 1978 of a rule titled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures.” See 16 C.F.R. § 436. The FTC defines a “franchise” as a business relationship with three major elements: (1) a franchise fee; (2) a trademark license; and (3) the franchisor’s substantial control or assistance over the franchisee’s method of doing business. See 16 C.F.R. § 436.1(h). State statutes define a franchise differently from jurisdiction to jurisdiction. However, state statutes commonly include the elements of a contract, a trademark authorized for use by others in conjunction with the sale of products or services, and payment of a fee.
Missouri enacted its franchise law in 1974. In particular, the Missouri Merchandising Practices Act (“MMPA”) contains a subchapter on “Pyramid Sales Schemes” that addresses certain rights and obligations of franchisees and franchisors in the context of franchise agreements. See § 407.400 RSMo.,et seq. For example, Section 407.405 states, in relevant part, “[n]o person who has granted a franchise to another person shall cancel or otherwise terminate any such franchise agreement without notifying such person of the cancellation, termination or failure to renew in writing at least ninety days in advance of the cancellation, termination or failure to renew, except that when criminal misconduct, fraud, abandonment, bankruptcy or insolvency of the franchisee, or the giving of a no account or insufficient funds check is the basis or grounds for cancellation or termination, the ninety days’ notice shall not be required.” Section 407.410.2 RSMo. provides franchisees’ with a cause of action to redress any violation(s) of the notice requirements of § 407.405 RSMo. and clarifies that, if a franchisee prevails in such action, it may recover damages that include loss of goodwill, costs of the suit, and any equitable relief that the court deems proper.
In addition to Missouri statute, Missouri common law recognizes other rights, protections, and considerations applicable to the unique context of franchise agreements. See, e.g., Armstrong Bus. Servs., Inc. v. H & R Block, 96 S.W.3d 867, 878 (Mo. Ct. App. 2002) (“[t]his court recognizes the uniqueness of franchise agreements in the business world….[b]ecause of the large investment of capital, time, and effort, the duration of a franchise agreement is very important to a potential franchisee”); Scott v. Tutor Time Child Care Sys., Inc., 33 S.W.3d 679, 681-84 (Mo. Ct. App. 2000) (refusing to enforce forum selection clause in franchise agreement because its enforcement would be unreasonable and unfair under the circumstances). In fact, courts have expressly recognized that the Missouri franchise statutes reflect “Missouri policy…[of] protect[ing] franchisees at termination of franchise relationships.” Armstrong, 96 S.W.3d at 878 (noting Missouri courts apply the recoupment doctrine to further protect franchisees where a franchise agreement is found to be terminable-at-will). Finally, under Missouri law, a duty of good faith and fair dealing is implied in every contract, including franchise agreements. See Arbors at Sugar Creek Homeowners Assoc. v. Jefferson Bank & Trust Co., Inc., 464 S.W.3d 177, 185 (Mo. banc 2015).
Generally, the underlying principle of franchise regulation is to place a prospective franchise purchaser in a knowledgeable position at the earliest time in the business relationship through the use of substantial written disclosures from the franchisor. Although no regulations exist covering all substantive aspects of the franchise agreement and relationship, items such as sale, renewal, termination and assignment of the franchise are extensively regulated.
Franchise Employment Disputes
We also represent and assist franchise owners in workplace disputes involving franchise employees. We provide the vigorous defense needed in response to employment-related claims by employees, from claims of wrongful termination, discrimination, or harassment to claims of wage and hour violations. Often, however, franchise employees who bring such employment-related claims may try to sue not only the franchise owner or franchisees, but also the franchisors. See, e.g., Conrad v. Waffle House, Inc., 351 S.W.3d 813, 820-23 (Mo. Ct. App. 2000). This reality raises a host of additional considerations for which you need comprehensive legal advice. Further, franchise agreements often contain terms regarding liability and indemnification in connection with such employment claims or disputes—that is, terms which may be used against franchisees to bear significant fees and costs incurred by other parties, like the franchisor. To best protect your business interests and avoid such pitfalls, knowledgeable legal counsel is necessary. Our Firm provides it.
Please feel free to the Law Offices of Kevin J. Dolley to discuss a franchise law related matter at (314) 645-4100 or by email at Kevin@dolleylaw.com.