ENCROACHMENT POLICIES

Franchisees often complain that the franchisor has opened a new store encroaching on his trade area -- the new competing store is robbing him of sales. Believing the franchisor is engaging in unfair competition practices, the franchisee starts a lawsuit.

Franchisee Lawsuits
Typically the lawsuit claims violation of the franchise agreement and of the implied covenant of good faith and fair dealing that the law finds in every contract.Also, a claim that the franchisor has violated the state’s “little FTC act” or unfair trade practices act is usually included.

Develop Clearly Defined Policies
Franchise companies are systems driven, and a written policy informing franchisees of how the company may handle new sites near an existing franchisee’s location, is essential to a successful franchise. Successful franchisors don’t improvise any aspect the company’s operations, and the encroachment policy needs to be thoughtfully established well in advance.

A good encroachment policy is one that is:

• Written
• Prospective
• Based on objective data
• Known to franchisees
• Transparent
• Consistently applied

A good encroachment policy will also draw on extensive franchise industry experience to deal with some of the complex issues that surface:

• Should franchisees have exclusive territory?
• Should the franchisor conduct an impact study before opening a new store?
• Can the neighboring franchisee be given a right of first refusal?
• Should the encroachment policy be mandatory?
• Is the encroachment policy disclosed in the UFOC?

Contact us for help in designing and implementing this essential tool.

Home | Solutions for Existing Franchisors| Solutions for the New Franchisor | Contact
Solutions for the Prospective Franchisee | About the Firm | Resources | Attorney Profiles