Why can’t I sue the Franchisor? - Wisewould Mahony reveals realistic exit strategy options
There are many successful Franchise systems that operate responsibly and support their Franchisees.
The Franchisors have invested in their business, staff training, research and development and look to ways to improve their system for the benefit of the brand, their consumers and their Franchisees.
However, for a variety of reasons, Franchisees may have entered into a Franchise system and become disillusioned.
Wisewould Mahony franchise lawyers provides some realistic, key considerations for franchisees.
The fundamental issues prospective Franchisees should always consider before committing are:
- If there is no financial return for your effort and there is no return on your investment
- Once you have committed there is no 'easy exit' out of the system
- There are no guarantees of any capital gain at the end so you better be able to make a return as you go on your effort (salary) and investment (profit).
- There is no Franchise where returns are made without effort, dedication and commitment
According to Wisewould Mahony, there are several options available to franchisees worth considering:
- Sell the franchise: Franchisees will nevertheless sell to release themselves from ongoing costs to creditors and landlords, even if that involves 'crystallising' a loss.
- Franchisor buy back: The Franchisee is released from ongoing obligations under the Lease and operating costs. The Franchisee will realise very little in removing the fit out they own as they would have to make good any damage.
- Dispute resolution mediation: If a Franchisee is unable to resolve matters from direct discussion with the Franchisors Area or State Manager, the issue should be taken to a higher level and if possible to one of the Directors of the Franchisor company. Other considerations include submitting a written complaint to the ACCC.
- Walk out: Often this last resort should be carefully considered.
There are a number of considerations such as risks of litigation and costly legal proceedings.
Better to talk. Communication. Negotiate.
Some of the keys to a successful negotiated outcome with Franchisors from our experience have been:
- Open the lines of communication with the Franchisor at the right level;
- Don’t threaten the Franchisor with legal action or going to A Current Affair;
- Arrange to meet and discuss sensible and realistic options. Don’t aim unrealistically too high;
- Apply strategic pressure where and when required – pick when to use any leverage that you may have.
- Avoid the “gung ho” litigation lawyer keen to commit you to a long and costly court battle.
- To seek objective strategic advice from an experienced Franchise lawyer who can assist you to explore the right strategy for you.