Clearly Worded Contracts Help to Prevent Litigation Related to Franchise System Change

Clearly Worded Contracts Help to Prevent Litigation Related to Franchise System Change

 

 

 

 

 

 

 

 

 

As franchise systems grow and expand, franchisors often feel the need to implement various changes such as altering distribution channels, changing product offerings, modifying design or architecture of franchise locations or introducing technology upgrades.  These types of changes can be perceived as disruptive to franchisees who have grown comfortable with the established franchise system.  If the system change is not clearly permitted by the franchise agreement, franchisees may seek to bring claims against a franchisor for breach of contract.  Accordingly, a well drafted franchise agreement is key for franchisors in order to avoid litigation with franchisees.

A franchise agreement that expressly permits a franchisor to implement certain changes to the franchise system is ideal for both parties; it shields a franchisor from liability for developing the business and it notifies franchisees of system changes that can be expected throughout the course of the franchise relationship.  It is ideal to make these provisions as specific as possible so that both parties are on the same page about where the business is headed.

Litigation is not only costly and time-consuming, but also harmful to franchisor-franchisee relationships.  It is in the best interest of both parties to avoid litigation as much as possible, as can be accomplished when expectations are clearly established in the franchise agreement.

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