Hiring a Franchise Attorney
When launching a franchise program, one of the first professionals that you will need to engage is a franchise attorney. Few states recognize “franchise law” as a specialty, so most lawyers may not promote themselves as “franchise lawyers”. So how do you know if an attorney is experienced in franchise law and competent to represent you and your new franchise program? You ask. Ask questions such as: How long have you been practicing franchise law? Are you a member of the American Bar Association’s Forum on Franchising (most lawyers that devote significant time in their practice on franchise law are members of this group)? Are you a member of the International Franchise Association (“IFA”, by far the largest trade association in the franchise industry)? How many franchisors do you represent? Have you registered franchise disclosure documents in all of the registration states? What are your fees? Don’t be afraid to ask about fees!
So where do you find a franchise lawyer? As you do in selecting other professionals, you should ask your friends, business associates, and other professionals (including your general business attorney) for recommendations. You should ask existing franchisors (not competitive with your system) for a recommendation. And you can use the IFA or your state bar association as a resource. Or you could just call me (just kidding).
Unless a particular attorney comes highly recommended from a trusted source, I recommend you interview more than one attorney. You should retain the services of an attorney that has franchise law experience, that you can trust, that communicates well, and that you genuinely like. Because franchising is highly regulated, you will have a considerable amount of interaction with your franchise lawyer (now there’s something to look forward to!). Hire someone whose company you enjoy.
Still have questions on hiring a franchise attorney? See our website or send me an e-mail.
afriedman@frglaw.com
www.franchiselaw.com
Friday, November 20, 2009
The Next Hot Franchise
The Next Hot Franchise
When I tell people that I am a franchise lawyer, they often ask: “What is the next hot franchise?” Relatives ask me to find them the “next hot franchise”.
And I have to ask them, “Why do you want to know?” What do you mean by “the next hot franchise”? If you want to know which franchise system is selling the most franchises per week, per month, or per year, you can look it up. But what does that really tell you? That the franchisor that sells the most franchises is the best? The most profitable? Or the one with the biggest marketing budget, the best advertising agency, the best public relations strategy, or the most emotional investment?
Several years ago, the “next hot franchise” was “I sold it” or any one of a number of e-Bay drop store franchises. They were selling like hot cakes. Rumors circulated about a waiting list for franchisees in some systems. So what happened? Well, the business model had a number of fatal flaws. What franchisees purchased was hype. There was never a proven business model or track record of success in this type of business. The franchisors themselves often did not operate a business of the type they were franchising, or if they did so operate, it was only for a short period of time. Not enough time to really determine if this was a successful business model or not. The “next hot franchise” is just that – all sizzle and no steak.
What my friends, relatives and acquaintances should be asking me is: “In what franchise system can I make the most money, or obtain the biggest return on my investment?” The next hot franchise is irrelevant. It may not be suited to your needs and desires for a number of reasons. It may not even be a profitable business model. What a prospective franchisee should ask is: What is the best franchise for me?
The answer to that question is for another blog post.
When I tell people that I am a franchise lawyer, they often ask: “What is the next hot franchise?” Relatives ask me to find them the “next hot franchise”.
And I have to ask them, “Why do you want to know?” What do you mean by “the next hot franchise”? If you want to know which franchise system is selling the most franchises per week, per month, or per year, you can look it up. But what does that really tell you? That the franchisor that sells the most franchises is the best? The most profitable? Or the one with the biggest marketing budget, the best advertising agency, the best public relations strategy, or the most emotional investment?
Several years ago, the “next hot franchise” was “I sold it” or any one of a number of e-Bay drop store franchises. They were selling like hot cakes. Rumors circulated about a waiting list for franchisees in some systems. So what happened? Well, the business model had a number of fatal flaws. What franchisees purchased was hype. There was never a proven business model or track record of success in this type of business. The franchisors themselves often did not operate a business of the type they were franchising, or if they did so operate, it was only for a short period of time. Not enough time to really determine if this was a successful business model or not. The “next hot franchise” is just that – all sizzle and no steak.
What my friends, relatives and acquaintances should be asking me is: “In what franchise system can I make the most money, or obtain the biggest return on my investment?” The next hot franchise is irrelevant. It may not be suited to your needs and desires for a number of reasons. It may not even be a profitable business model. What a prospective franchisee should ask is: What is the best franchise for me?
The answer to that question is for another blog post.
Tuesday, November 10, 2009
Non-Disclosure Agreements
Non-Disclosure covenants and agreements are an essential element of all franchise systems. Non-disclosure covenants are contained in most, if not all, franchise agreements, and most, if not all franchise systems require the owners and employees of the franchisee to execute separate non-disclosure agreements. Many franchise systems provide their franchisees with a form to use for this purpose.
However, in my experience, many franchisors do not have a system or procedure to track or audit the franchisee's compliance with the non-disclosure obligations and the obligation to have each owner and employee execute a separate non-disclosure agreement. I would argue that making the form available to the franchisee, and including a section in the operations manual on hiring practices is insufficient and could result in a material adverse consequences to the franchisor. The franchisor should have a system to require the franchisee to deliver to the franchisor a copy of each non-disclosure agreement signed by each employee of the franchisee. In many cases, the form made available by the franchisor includes a provision that the franchisor is a third party beneficiary of the non-disclosure agreement with the independent right to enforce its terms. If a franchisee fails to require its employees to execute non-disclosure agreements, the franchisor may be without a remedy to prevent the unauthorized use or disclosure of confidential and proprietary information belonging to the franchisor.
Furthermore, the failure of the franchisor to adequately protect its confidential and proprietary information may result in such information losing its status as a "trade secret" thereby seriously eroding one of the franchisor's most valuable assets - its intellectual property rights. Most state trade secrets protection laws require the owner of a trade secret to take "reasonable steps" to prevent the unauthorized access to and disclosure of trade secrets. The lack of adequate systems and safeguards may compromise the franchisor's rights with respect to its proprietary information and trade secrets.
In the non-franchise context, non-disclosure covenants and agreements are also very important. I received a phone call this week from a (non-franchise) client that has been in business for over 30 years asking me for a form of employee non-disclosure agreement. Now, how could a company be in business for over 30 years and not have a standard form of non-disclosure agreement and require all of its employees to sign the non-disclosure agreement as part of the hiring process? This is a very successful company, but this is a sloppy business practice. All companies, large and small, franchised and independent, should have a standard form of non-disclosure agreement to be signed by each employee as part of the hiring process. Whether or not the form includes some sort of non-solicitation provision, non-competition covenants, or invention or patent assignments will vary with the nature of the business. But not having a system in place to monitor the execution of non-disclosure agreements is not acceptable.
Do you have a good form of employee non-disclosure agreement? Do you have a system to ensure it is timely and properly executed? Do you maintain a file of all non-disclosure agreements? If you are a franchisor, do you audit the franchisee's business to confirm that they maintain safeguards to protect confidential information (i.e. password protected files on computers) and that they have all of their employees sign non-disclosure agreements?
Later posts will address this issue in more detail. Stay tuned!
However, in my experience, many franchisors do not have a system or procedure to track or audit the franchisee's compliance with the non-disclosure obligations and the obligation to have each owner and employee execute a separate non-disclosure agreement. I would argue that making the form available to the franchisee, and including a section in the operations manual on hiring practices is insufficient and could result in a material adverse consequences to the franchisor. The franchisor should have a system to require the franchisee to deliver to the franchisor a copy of each non-disclosure agreement signed by each employee of the franchisee. In many cases, the form made available by the franchisor includes a provision that the franchisor is a third party beneficiary of the non-disclosure agreement with the independent right to enforce its terms. If a franchisee fails to require its employees to execute non-disclosure agreements, the franchisor may be without a remedy to prevent the unauthorized use or disclosure of confidential and proprietary information belonging to the franchisor.
Furthermore, the failure of the franchisor to adequately protect its confidential and proprietary information may result in such information losing its status as a "trade secret" thereby seriously eroding one of the franchisor's most valuable assets - its intellectual property rights. Most state trade secrets protection laws require the owner of a trade secret to take "reasonable steps" to prevent the unauthorized access to and disclosure of trade secrets. The lack of adequate systems and safeguards may compromise the franchisor's rights with respect to its proprietary information and trade secrets.
In the non-franchise context, non-disclosure covenants and agreements are also very important. I received a phone call this week from a (non-franchise) client that has been in business for over 30 years asking me for a form of employee non-disclosure agreement. Now, how could a company be in business for over 30 years and not have a standard form of non-disclosure agreement and require all of its employees to sign the non-disclosure agreement as part of the hiring process? This is a very successful company, but this is a sloppy business practice. All companies, large and small, franchised and independent, should have a standard form of non-disclosure agreement to be signed by each employee as part of the hiring process. Whether or not the form includes some sort of non-solicitation provision, non-competition covenants, or invention or patent assignments will vary with the nature of the business. But not having a system in place to monitor the execution of non-disclosure agreements is not acceptable.
Do you have a good form of employee non-disclosure agreement? Do you have a system to ensure it is timely and properly executed? Do you maintain a file of all non-disclosure agreements? If you are a franchisor, do you audit the franchisee's business to confirm that they maintain safeguards to protect confidential information (i.e. password protected files on computers) and that they have all of their employees sign non-disclosure agreements?
Later posts will address this issue in more detail. Stay tuned!
Monday, November 9, 2009
This is my first blog post on Franchise Notes!
Driving from Lexington, Kentucky to Boca Raton, Florida this weekend I could not help but consider the profound impact franchising has on our economy. Every billboard and exit ramp sign seemed to display the name and/or logo of a franchise system.
I have read statistics, primarily from the International Franchise Association (IFA), regarding the lower failure rate of franchised businesses versus independent businesses. I wonder if there are any studies to determine if the disparity in failure rates increases or dcreases during a recession. My intuition tells me that a franchise system will fare even better during a recession than independent businesses. Presumably, the franchised business has better systems in place to weather the economic storm. And the franchise system has a franchisor and a group of franchisees that can collaborate on methods to reduce costs and increase revenues. On the other hand, an independent business may have more flexibility on how to adapt to the changing economic environment.
Does anyone have any thoughts on this issue?
How has your franchised business or independent businesses adapted to the recession? Would the result have been the same if you were in the other category?
Driving from Lexington, Kentucky to Boca Raton, Florida this weekend I could not help but consider the profound impact franchising has on our economy. Every billboard and exit ramp sign seemed to display the name and/or logo of a franchise system.
I have read statistics, primarily from the International Franchise Association (IFA), regarding the lower failure rate of franchised businesses versus independent businesses. I wonder if there are any studies to determine if the disparity in failure rates increases or dcreases during a recession. My intuition tells me that a franchise system will fare even better during a recession than independent businesses. Presumably, the franchised business has better systems in place to weather the economic storm. And the franchise system has a franchisor and a group of franchisees that can collaborate on methods to reduce costs and increase revenues. On the other hand, an independent business may have more flexibility on how to adapt to the changing economic environment.
Does anyone have any thoughts on this issue?
How has your franchised business or independent businesses adapted to the recession? Would the result have been the same if you were in the other category?
Subscribe to:
Posts (Atom)
