|Franchise Lawyer, Canada|
Burnet, Duckworth & Palmer LLP
2400, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada
Tel: (403) 260-0130
Cell: (403) 370-5277
Toll Free: (888) 370-5277
Fax: (403) 260-0332
George A. Wowk is a lawyer at Burnet, Duckworth & Palmer LLP
in Calgary, Alberta, Canada and he has been practising law since 1996. He practises in the areas of
George advises on all aspects of franchises, dealerships and distributorships, including advising on the setup and branding of franchises and the negotiation of franchise agreements.
For franchising, George provides legal advice on all aspects, including franchise agreements, franchise disclosure documents, branding, promotion, dispute resolution, franchise litigation and legal matters relating to the operation of franchise systems. He advises both franchisors and franchisees and his clients range from individuals wishing to purchase a franchise to franchisors of national franchise systems. He provides practical and solutions-oriented advice to his clients.
As well, George can assist with your general requirements in setting up your business, including incorporation, employment contracts, consulting agreements, non-disclosure agreements and registering trademarks.
Franchise Law Practise
The Franchise Business
Franchise businesses are everywhere and growing. It is difficult to drive down a street in a commercial part of a city without seeing a number of franchise businesses. For many individuals, they provide an enticing opportunity to own and operate their own business. For the franchisor, selling a franchise provides an opportunity to expand the reach of the franchise system without being concerned with the day-to-day operations of the individual franchised business.
These systems can be a wonderful opportunity for both parties and at the same time they can represent risks for both parties. Therefore, it is important for the parties to make an informed decision before entering into a franchise relationship and that an appropriate franchise agreement be in place.
Nature of the Franchise Relationship
Very generally, a franchise is a busIness where one party, the franchisor, establishes the branding and the manner by which the franchised business is to operate and the other party, the franchisee, becomes responsible for the day-to-day operations of the franchised business. In exchange for being permitted to own and operate the franchised business, the franchisee will make periodic payments to the franchisor and comply with the franchisor's specific operating requirements. Usually, for any given franchise system, there will be one franchisor and many franchisees. As well, there is no reason a franchisor cannot own and operate one or more franchises.
It is through the consistent use of the franchise branding and the consistency in the offering of the products and services by all franchisees that significant goodwill in the marketplace will be developed. This goodwill increases the value for both the franchisor and the franchisees.
Types of Franchise BusinessesBusinesses that have been franchised come in all shapes and sizes. They include:
Benefits of the Franchise Relationship
A franchise system enables the system owner to concentrate on developing and expanding the franchise system while not having the responsibility for the day-to-day operations of the franchise outlets. Each franchise outlet is typically owned and operated independently by a third party, the franchisee. This structure permits the system to grow significantly faster than it could otherwise.
From the franchisee's point-of-view, the franchisee is able to own and operate a business that may already have significant goodwill in the marketplace. As well, the franchisee is able to participate in a system that has already been proven to be successful. This removes a significant amount of the risk associated with starting up a business. As another benefit to the franchisee, the franchisor typically provides a significant amount of guidance to the franchisee in the day-to-day operations of the franchised business. Since the franchisor has already figured out what works and what does not work, the franchisee will not have to repeat the same mistakes that the franchisor has already made.
From the consumer's standpoint, a franchise system represents a known offering of goods and services. This reduces the risk to the consumer of an unsatisfactory experience. As an example, a consumer knows exactly what they will be getting when they order a Big Mac at a McDonalds, even though the customer may never have been at the particular McDonalds location. They will also have comfort in other matters such as the standards of cleanliness and safety that are maintained by McDonalds.
Risks of the Franchise Relationship
Of course, franchises have their risks. From the franchisor's point-of-view one of the most significant risks arises due to the loss of direct control over the manner in which the franchised business is operated. A single bad experience at a franchise outlet may result in a consumer not returning to any other franchise outlet in the future.
For the franchisee, there are also a number of risks and obligations. Most notable is the ongoing payments to the franchisor just for the right to operate the franchised business. These payments would not have to be paid if the franchisee started the business independently of the franchise system. However, these fees often represents the additional value to the franchisee due to brand recognition and the existing goodwill in the marketplace as well as the reduced risk through being able to own and operate a proven business model.
As well, another risk or limitation to the franchisee is that the franchised business must be operated within the strict requirements set by the franchisor. This may limit the modifications the franchisee may make to the product and service offering. This lack of control over the business may be a source of frustration for the franchisee as they may not be able to pursue available opportunities. However, most franchisors do provide for some flexibility as they recognise that market conditions may differ from location to location. For example, McDonalds offers the Ebi Filet-O in Japan, which is basically a burger made from shrimp meat.
By signing a franchise agreement, the franchisee is making a long-term commitment to operate the franchised business. If the franchised business is not profitable for any number of reasons, the franchisee could suffer substantial losses over an extended period of time. This potentially is a significant risk.
The primary means of binding the franchisee and the franchisor in the franchise relationship is the franchise agreement. The franchise agreement contains the rights and obligations of the parties. Some of these agreements can be quite extensive.
Most franchisors will insist that the parties use their form of franchise agreement. Not surprisingly, the provisions in a franchise agreement typically favour the franchisor. However, as with all agreements, they are open to negotiation. However, many franchisors resist having their forms of agreements changed. The modifications to the franchise agreement that are acceptable to the parties is a matter of negotiation between the parties.
Often, the franchisee will be investing considerable time, effort and money in developing and running their franchised business. As well, the franchisee will likely be exposed to significant risk in the event the business does not work out. Therefore, it is important that an appropriate franchise agreement be in place.
From the franchisor's perspective, the franchise agreement needs to contain provisions that will protect the franchisor in the event the franchisee is not complying with all of the requirements of the franchise system. These requirements are there to ensure that the standards for services and products are maintained and that there is consistency between franchise outlets. Many franchise systems are extremely valuable and a single franchisee can create a significant amount of damage in a short period of time. Therefore, it is important that the franchise agreement properly protects the franchisor's interests.
While the terms of the franchise agreement generally favour the franchisor, a franchisee should take comfort that those terms will also apply to all other franchisees. Therefore, in the event another franchisee fails to operate in accordance with the requirements of the franchise system, the franchisor would have the ability to keep the franchisee in line. That, in turn, will serve to protect the value of the businesses of all franchisees. Think of the damage to the franchise system of a fast food restaurant if it become widely publicised that a single franchise outlet had a number of rats living within the premises.
Franchise legislation has been put in place in some provinces to protect the interests of franchisees. Primary among the protection provided is the requirement of the franchisor to deliver a franchise disclosure document to the potential franchisee. The intention is that the franchise disclosure document will help the potential franchisee make an informed decision before purchasing the franchised business and investing a significance amount of time, effort and money.
The franchise relationship can be a fairly complex relationship due to the amount of control that a franchisor needs over the franchisee. This complexity is then reflected in the franchise agreement, making these agreements long and complex. The franchise agreement will typically address the various rights and obligation of the parties and allocate the various risks between the parties. The parties need to spend adequate time considering these risks and weighing the appropriateness of the various provisions contained in the franchise agreement.
A franchise can be rewarding for both the franchisee and the franchisor. For the franchisor, through enlisting a franchisee to run the franchised business, the franchisor gets to expand the franchise system while at the same time having someone who is passionate about the business look after the day-to-day operations. For the franchisee, they get to own and operate a business that has been proven to be successful and to participate in the related financial rewards.
Memberships and Affiliations