Business lawsuits have a tendency to become very complicated quite quickly. Minor details in a contract or business arrangement can have major implications on legal proceedings. Franchises, which involve investors buying into a business opportunity with an established brand, have very complex contracts and can frequently lead to complicated litigation.
Franchisees who have likely made a six-figure investment in their business opportunity sometimes need to initiate legal action against a franchisor that offered them a branding opportunity. The following are some of the leading reasons that franchisees file lawsuits.
Territorial violations
Businesses offering franchise opportunities often go to great lengths to help investors secure reasonable returns on their investments. Preventing other franchisees from operating a business too close to an existing franchise is crucial to ensuring adequate demand for the goods or services a franchise offers. Franchise contracts frequently include clear territorial protections. If the franchisor lets another franchisee begin operating too close to an existing franchise location, that may lead to litigation because of the impact it could have on the established franchisee.
Inadequate marketing investments
Marketing at the national, regional and local levels is often crucial for franchise success. They help drive brand awareness and interest in what the company has to offer. Oftentimes, franchisors commit to investing a certain amount in local marketing to support new franchises. A failure to follow through on those commitments could mean underwhelming returns for a franchisee. Issues with local marketing could easily lead to lawsuits.
Failure to train and support franchisees
Franchisees may or may not have business experience, and they likely require special training to operate a successful franchise. Franchisors offer training on everything from ensuring products or services align with company standards to employee management. When a franchisee does not receive adequate training or does not receive ongoing support after establishing their business, that may violate the terms of the agreement initially reached with the franchisor. Franchise lawsuits can lead to financial compensation, orders of specific performance or relief from an expensive franchise agreement.
Those taking legal action while subject to a franchise contract often need help preparing for what could be a very complex litigation case. Reviewing franchise contracts with a skilled legal team is often a crucial starting point for those preparing for franchise-related business litigation.