Franchise Law vs. Franchise Relationship

Franchise Performance Group Latest Blog Posts

I recently participated in a panel discussion at the recent IFA Conference with attorneys Andrew Loewinger of Nixon Peabody and Joel Schweidel of Kahala Corporation about �must have� provisions in the franchise agreement. In preparation for the presentation I started pondering the role of the franchise agreement in modern franchising.

I often hear the franchise agreement referenced in such terms as…

  • a document which clearly capture the roles and responsibilities of both the franchisor and franchisee and define their legal relationship to one another
  • the franchisor�s last line of defense against one or more angry or renegade franchisees

In addition, if a franchisor finds itself in a conflict situation with its franchisees, their agreement spells out what the franchisor could do in the way of legal action and default provisions. However, it tells the franchisor nothing about the right thing to do.

I was recently watching a debate on YouTube about whether or not absolute �right� and �wrong� exists, author William Lane Craig, PhD in Philosophy, posed the following ethical dilemma. He invited the audience to imagine for a moment that the German Army won World War II. The Nazi regime then continued to exterminate anyone they considered unfit for their master race. The Nazi propaganda machine effectively brainwashed all remaining survivors to believe these exterminations were necessary to strengthened the human race. There was no on left on Earth to protest or say different. Would the Nazi�s actions then become righteous because the Nazis declared it so and to the victor goes the spoils? Or would their actions be immoral simply because some actions are ABSOLUTELY WRONG regardless whether not they are considered culturally acceptable.

For those of us who believe in moral absolutes, the franchise agreement should neither be considered �the final word� nor a source for moral guidance. While in most situations, �right� and �wrong� may not be as clear as in the example Craig offered, we need to rigorously work to find that grain of absolute right and act accordingly, even if we find ourselves on the short end of what�s right.

Franchisor leaders who have established a reputation with franchisees for being moral, fair, and just in their dealings will find they do not need to rely on the protection offered them under the franchise agreement. In conflict situations, franchisees almost always engage them in productive, win-win problem solving. Put another way, the same franchisees whom the agreement is designed to protect the franchisor from will circle around the leaders and support them.

In a recent discussion, Greg Nathan of Franchise Relationships Institute defines fairness in 3 ways:

  1. Consistent with the franchise agreement
  2. The right thing (moral and just)
  3. Financially sound (taking into account the business considerations of all parties).

In conclusion, the final protection of the brand ultimately lies in the franchisor�s well-earned reputation for fairness and trusting relationships, not in the carefully crafted clauses of the agreement.