For Franchisee Groups / Franchisee Associations

The franchise relationship is characterized by various inequalities between the franchisor, on the one hand, and the individual franchisee, on the other. These inequalities manifest themselves in a number of ways. Firstly, there is an inequality of bargaining power. Franchise agreements are commonly referred to as “contracts of adhesion,” meaning that they are essentially offered on a take-it-or-leave-it basis. Generally speaking franchisors do, for the most part, require the rights reserved in their favour and the obligations imposed upon franchisees by the franchise agreement, in order to maintain the integrity of the franchise system. This does not take away the fact that franchise agreements are not really “freely negotiated” in the same manner commercial parties normally negotiate their contracts.

Secondly, there is an information imbalance. The franchisor is usually possessed of a wealth of information about the operation of the franchised business and the industry in which the franchised business operates. The franchisee’s knowledge of both the franchised business and the industry in which it operates is usually much more limited. As a result, franchisees often lack the legitimacy to question the franchisor as to the manner in which the franchised business operates.

Thirdly, and most importantly, there is an inequality of economic power. Franchisors usually have the financial capacity, as well as the professional expertise, to withstand challenges to the franchise relationship. Coupled with the fact that these challenges are always less personal for the franchisor than they are for the franchisee, it is easy to see how disputes between franchisors and franchisees almost always favour the former.

There are many examples throughout history and all facets of life, in which individuals were able to achieve more as a group than any single member of the group was able to achieve individually. The reasons for this are likely obvious. The group is able to pool limited resources, be they intellectual (which is not to suggest that individuals are limited intellectually, but rather to state that two heads are better than one), time, capital, or other economic and personal resources. Franchisees, whether acting as a group or as part of an association, are able to “equalize” the various imbalances that exist in the franchisor-franchisee relationship so that the parties can develop and progress that relationship in a more neutral manner.

Franchisee Services

• Business/legal aspects of buying a franchise, including review of disclosure documents
• Resales and renewals
• Structuring advertising funds programs and materials

Franchise Relationship Services

• Addressing relationship problems and advising on ways to enhance franchise and distribution relationships
• Defaults, terminations and transfers
• Establishing, structuring, organizing and advising Franchisor Advisory Councils
• Establishing, structuring, organizing and advising Franchisee Associations
• Insolvency issues
• The obligations imposed on the franchise relationship by Franchise Legislation

Franchise Litigation Services

• Legal proceedings to obtain or defend claims for injunctive relief to enforce termination rights, restrictive covenants
• Protection of trade-name, trade-mark, domain name rights and other intellectual property rights
• Representing franchisors, franchisee associations and franchisees with their disputes through negotiation, mediation, arbitration (all forms of alternative dispute resolution mechanisms) or litigation regarding all aspects of the franchise relationship including breaches of the statutory duty of fair dealing pursuant to Franchise Legislation
• Representing franchisors and franchisees in class and representative action

If you have questions regarding the purchase, sale, or ownership of a franchise based business, please contact our office at 855-324-3944 or via email at dkornhauser@msmlaw.ca.

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