Hiring a Franchise Lawyer to Stop Franchise Encroachment in its Tracks
When you purchased a franchise, you likely did so believing that your investment in developing a territory would be protected. That protection can take different forms. Some franchise systems use account or client protection providing a franchisee exclusivity once that franchisee has brought a client to the brand. Other franchise systems provide geographical protections. Sometimes these take the form of zip codes, cities, or counties being protected, meaning that other franchises or company-owned locations cannot be located or provide services or products in those designated areas. In other instances, franchise systems protect a certain number of miles from the franchise location or a certain population surrounding the franchise location. This is often known as a radius of exclusivity.
Having an exclusive or protected territory is one of the few substantial contractual rights provided to a franchisee in a franchise agreement. Unfortunately, these rights can be ignored by a franchisor seeking to develop without regard for your interests. We can assist you in understanding your territory rights and determining whether those contractual rights have been violated.
Territory Infringement or Violations Can Take Many Forms
Encroachment can occur in many ways. Frequently, we see this issue where a franchisor opens another location, be it company-owned or a franchisee, in your geographic territory or in close proximity. This is sometimes called “brick-and-mortar” encroachment. For example, the franchisee may be within your geographical territory. Or a franchisor may, through a questionable analysis, attempt to reduce your territory to a smaller size based on their inaccurate population or distance estimates.
Territory violations can also occur on a customer basis. For example, in franchise systems where customers or accounts are protected, a franchisor could either provide a new franchisee the same accounts or otherwise not enforce the protection (thereby allowing other franchisees to solicit your customers). Or a franchisor may not properly monitor or enforce geographic territories leading other franchisees to service clients or sell in your territory.
Other times, the franchisor may pursue distribution through other methods (e.g., online or non-traditional venues) in a way that violates your protected territory. This product or service encroachment can result in a franchisor competing against you in your own territory (for example, through internet sales). Or perhaps your agreement is older and does not even contemplate some of the more modern distribution methods such as online food ordering and food delivery platforms. We will analyze your territory rights and advise you on how best to protect them.
Pushing Back Against A Franchisor’s Encroachment
Most franchise owners are less interested in litigation than in protecting the investment they made in developing a territory. By getting a franchise lawyer involved early, we can determine your rights and start a dialogue with the franchisor. It can be very difficult to get a franchisor to unwind a franchise sale or hand over a company-owned location. By being proactive and guarding your rights, we can educate the franchisor on their potential liability before they encroach on your territory. We can also start to determine the financial impact the encroachment may have on your franchise. Even where the franchisor is being unreasonable, taking early action greatly increases the likelihood that we can secure an injunction in court stopping the encroachment.
If the franchisor has already walked down a path of encroachment, our goal will be to get you properly compensated for your loss. Where the territory rights are explicit and have been breached, we can bring breach of contract claims against the franchisor. In some circumstances, even where the territory rights don’t favor you, we may be able to argue that the contractual right to place company-owned units next to or very close to your franchise is unconscionable and should be stricken by a court. This is where it helps to understand and be familiar with statutes and cases in a given state.
Franchisors are also constrained here by the covenant of good faith and fair dealing. Most states in the United States, including California, imply the covenant of good faith and fair dealing into every contract. This requires the franchisor to treat the franchisee fairly and in a commercially reasonable manner. Where the agreement is silent or ambiguous on certain territory rights or the franchisor exercises its discretion in bad faith, we can bring claims on your behalf against the franchisor for encroachment. Our goal is to get you the profits and value of your business that you have lost in these claims.
Contact an Expert in Franchise Encroachment Today
When “staring down the barrel” of encroachment, it pays to be proactive and assert your territorial rights. You need an aggressive franchise attorney on your side who knows how to negotiate with franchisors. Whether you are in Orange County, San Diego, Los Angeles, Southern California, or beyond, to discuss your case and how we can help, call or email us today to schedule a consultation.