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Emerging Legal Challenges in Franchising
If you are venturing into franchising, you’ll need to be aware of the legal requirements within the industry both to protect yourself and to make sure you’re getting the support you deserve.
Franchising offers a promising avenue for entrepreneurs looking to partner with an established business model under a recognized brand name. However, the legal landscape in the world of franchising is complex. As a prospective franchisee, you’ll need to know the legalities you will face and understand how to navigate them.
1851 Franchise spoke with Ben Michael, Attorney, Michael & Associates to glean his insights on the legal challenges the franchise industry is currently facing.
Legal Documents
The first step in franchising is selecting a brand, and when doing so, you should review the legal considerations with scrutiny. Two of the most important documents you will be presented with are the Franchise Disclosure Document (FDD) and the franchise agreement. The FDD is a legal document that franchisors are required to provide early on in the buying process. It contains a record of detailed information about various aspects of the franchisor-franchisee relationship, and showcases the brand’s history, financial health, legal standing and more.
The franchise agreement is another major legal document that you and the franchisor will sign, and it includes information such as territory delineation, the franchise term and financial obligations. For both of these documents, it is advisable to seek professional legal guidance to ensure you understand all of the obligations put upon you and what you can expect from the franchisor. This will help you maintain compliance on your end and also allow you to make sure you are getting everything you have been promised from the corporate team, whether that be training, support or otherwise.
Local Laws and Regulations
In franchising, local laws and regulations will impact your specific franchise location differently than they may impact others.
According to Michael, understanding these local differences is more important now than ever given the wider reach of brands across international borders in recent years.
“The biggest concern with the globalization of the franchise market is compliance with local laws. Each country, state, county, province, etc. is going to have different laws governing what they deem acceptable for employer/employee relationships,” he said.
As a franchisee, you will want to be aware of the laws that dictate how you interact with your employees, of course, but the franchisor should provide you with support in this area as they should have a thorough understanding of the local laws and regulations in every region their brand touches.
“If you're taking your franchise global,” said Michael, of franchisors, “you need to have a strong working knowledge of each region's laws to make sure you and your franchisee are compliant.”
Marketing, Advertising and Employment Decisions
Marketing, advertising and employment decisions also present legal issues in franchising. Franchisors seek to maintain brand consistency through stringent marketing guidelines or other requirements, which is likely to infringe upon the typical independence and autonomy that comes with being a business owner. It’s important to speak with a franchise lawyer to understand what is required of you and whether or not the demands are fair for both parties.
“As both a franchisor and franchisee, you need to be informed about who is responsible for any mistakes that are made when it comes to marketing and employment issues,” explained Michael. “This is the basis for most of the disagreements in the franchise relationship.”
And when you do have some choice in your advertising or marketing efforts, it is important to be cautious. You want to be aware of local laws, but also of cultural perceptions, especially if you are newly franchising in a region that you are not from or familiar with.
“You need to ensure that you're being culturally accurate with your marketing, as well as compliant with local laws governing that,” said Michael. “What is perfectly acceptable in one area of the world as a marketing campaign might be horribly offensive in another. It's important to know your audience, in other words.”
Understanding The Legal Landscape is Vital for Success
While it is known that success in franchising requires business acumen, a keen understanding of franchise law is also sure to come in handy. By addressing legal considerations such as franchise documents, local regulations and marketing compliance, franchisees can mitigate risks and build a solid foundation for their business ventures. If ever you are unsure, reach out for guidance and support from knowledgeable legal professionals.
To read more about legal concerns in the world of franchising, check out these stories:
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