Lynne Hanson, Partner and leader of the firm’s Franchise and Distribution Group, recently spoke with Laura Michaels at Franchise Times about what a franchisor can do to avoid costly litigation. The article, Open Dialogue Helps Emerging Brands Avoid the Courtroom, was published in the March edition of The Upstart, a column on building a better franchise system. An excerpt from the article is below.
As a system grows in size, litigation is inevitable, or at least that’s a default comment from many in franchising. And while it’s not uncommon for a larger franchise to have a handful of cases listed in Item 3 of its franchise disclosure document, there’s plenty a franchisor can do to avoid the courtroom, starting with an emphasis on communication with franchisees, setting realistic expectations and providing proper support.
For a young brand, supporting that first group of franchisees “will pay dividends many, many years down the road,” says Lynne Hanson, an attorney at Denver law firm Moye White who works often with emerging franchisors. “They’ll be able to validate the brand and that relationship with the brand.” And conversely, “if you’re not supporting them and you have a handful of them fail, that can be damaging for years.”
Though Hanson agrees a franchise typically will have litigation at some point, for a young brand a lawsuit can not only stress the system by tying up resources but also impact its reputation and ability to attract operators. “Frankly, it just doesn’t look good,” says Hanson, particularly to candidates evaluating the concept. “That’s a big red flag, potentially, whether it’s the franchisee suing the franchisor or vice versa.”
About Moye White LLP
Moye White is a full-service business law firm serving clients throughout the United States and internationally, with offices in Colorado and Georgia. The firm provides legal representation to clients in a wide variety of industries offering strategic, business-oriented counsel to public, private, and governmental clients in complex business and real estate transactions and commercial litigation matters.