Page 6

ASK THE AFA

Question: 

We are part of a small, 80-unit franchise chain, with franchisees scattered from Maryland to Florida to Texas to Minnesota.  The franchisor is not delivering on his promises.  A number of us are going out of business even though we’ve followed the franchisor’s so-called, “system.”  For example, they said we’d receive proprietary software when, in fact, there is no proprietary software.  Bottom-line, they outright lied to us during the sales process.  Is there a state or federal agency we can complain to?  Will the state (or the feds) even pay attention to us because we’re not part of a big franchise chain?

Answer: 

There are a number of tactics to take in this situation.  You might want to move on a number of fronts at the same time. 

First, go to the AFA’s website at www.franchisee.org and click on “FTC Rule and State Law.”  Fill out the complaint form and forward to the Federal Trade Commission (FTC).  Realize, however, that the FTC typically acts only when a large number of similarly situated franchisees file the same or similar complaints.  It is difficult to say what the FTC considers a “large number,” however.  Eighty complaints might not be enough for them to take any action. 

Second, if your state has an agency listed on the AFA’s website, use the link we provide and file a complaint with your state agency as well.  Be aware, however, that not all 50 states have rules or laws governing franchising.  Approximately 14 states (CA, HI, IL, IN, MD, MI, MN, NY, ND, SD, RI, VA, WA, WI) have authority of some sort and should hear not only from you, but from all 80 of the franchisees in your chain, even if they are not located in the state to whom they are writing.

Our experience with those states charged with overseeing franchising is that they focus more of their attention on a complaint from a citizen who resides in or who has a franchise in their state, or if the franchisor under question is based in their state.  However, if they receive complaints from many franchisees from around the country that sends a signal that there is a very serious problem within a particular franchise system.

Third, if the franchisor is based in one of the 14 states listed above, all 80 of the franchisees in your chain should write and complain to that state about the franchisor’s alleged misrepresentations.  Complaints should also be written to the local office of the Better Business Bureau.

Fourth, consider hiring the expertise of a franchisee lawyer to read the offering circular the franchisor first provided you.  An experienced franchisee lawyer knows “where the bodies are buried” and will quickly determine if you have a case against the franchisor.  To make this analysis, the lawyer will also want to read the franchise agreement you signed in order to determine not only your rights but the franchisor’s responsibilities under the contract as well.  If the lawyer can find a way to either help you individually or to help a number of your fellow franchisees collectively he/she will certainly let you know. 

And, finally, a franchisee lawyer does not have to be located in your hometown or even your home state.  Franchising is conducted across state lines.  Therefore, the most important qualification is that the lawyer represents franchisees.  You don’t go to an eye doctor if you have a heart attack.  Similarly, you don’t go to a real estate attorney to handle franchise issues.

For a list of AFA Affiliate member lawyers please click here.

If you have a franchise related question, please send it to the AFA at askafa@franchisee.org.

Home Page

American Franchisee Association
53 West Jackson Blvd.   Suite 1256
Chicago, IL  60604

(312) 431-0545
www.franchisee.org
info@franchisee.org