Free CLE podcast provides tips on legal aspects between franchiser and franchisee

Minneapolis lawyer Ronald K. Gardner Jr. joined Richard Rosen, a New York-based solo practitioner and Charles G. Miller of Bartko, Zankel, Tarrant & Miller in San Francisco on "Growing Pains for Franchise Law," an ABA-CLE podcast available free to ABA members.

Although franchising has been around for some 40 years, it's still a relatively new area of law. Rosen started the program by explaining what "encroachment" means in terms of franchise agreements. One of the keys to success of most franchisements, Rosen said, was that a franchisee has to "have the ability to develop a market." Usually, but not always, that is geographic in nature. When there's an invasion – a drawing away from the market to another franchise unit – continued Rosen, there's encroachment.

When there's a reduction in customer base and a reduction in a franchisee's revenue due to encroachment, what options are available short of litigation, posed Rosen. While negotiation is best, a franchisee may not, either as an individual or small business owner, have the resources to negotiate with any real power. Negotiations, therefore, often take place between a franchisor and a franchisee association.

Miller noted that franchising is facing new challenges in the world of e-commerce and the Internet. Given the importance of traditional physical boundaries in the business, how will franchising agreements change? Gardner mentioned that already for some product lines, distribution channels have changed in recent years – such as Carvel Ice Cream now being sold in grocery stores. The point is, he said, we "can't anticipate how growth may occur." What's important is that there be "good faith" and "fair dealing."

Miller briefly discussed pending cases that involved franchise associations before the panel turned to class action suits. Rosen noted disadvantages to class actions – they may become unwieldy, the suit may not directly intersect each of the franchisees' interests, and the distribution of the settlement may be contentious. On the other hand, a class action suit can get the attention of the franchisor that a claim by an individual franchisee might not, a group of franchisees coming together in a class action may be better able to afford the costs associated with the gathering of evidence, and group action may result in more meaningful negotiation.

"Growing Pains for Franchise Law" was an ABA Connection program. A story that laid the groundwork for the podcast, "Troubled Kingdoms: As Franchises Seek to Expand Their Empires, Individual Operators Look for Ways to Protect Their Turf," can be found in the April 2006 ABA Journal.

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