Making the decision to invest in a franchise business can be a difficult one. As a franchisee or an interested investor, it’s essential to ask the right questions to ensure that your decision is the right one. With so many options available, understanding the complexities of franchising — such as the differences between franchisor and franchisee — is key.
In the case of corporate layoffs, stakeholders in both franchisor and franchisee positions must understand the implications of layoffs and how they may affect their relationship. This article examines franchisor vs franchisee rights and responsibilities in the context of corporate layoffs, providing answers to important frequently asked questions (FAQs) about the implications of these decisions.
What is the Difference between Franchisor and Franchisee?
A franchisor is a business that owns the brand and provides a business structure and National Advertising Fund (NAF). The franchisor owns the operations manual and signs the franchise agreement. The franchisor works mainly to ensure that all franchisees comply with brand standards and practices.
A franchisee is an individual or an organization that buys into a franchise and invests in it. The franchisee pays franchise fees, royalties, and other related fees to the franchisor. The franchisee agrees to utilize the franchisor’s brand, business model, systems, and procedures. The franchisee is also responsible for the day-to-day operation of the business.
Can Franchisors Layoff Franchisees?
It is important for franchisors to understand their legal obligations before embarking on any layoffs or restructurings. Franchisors cannot unilaterally terminate a franchisee without just cause. Franchisors must also demonstrate that they followed all applicable state and federal laws, which may govern on the property rights involved in the franchisor/ franchisee relationship. In some cases, franchisees may be entitled to seek financial damages for breach of contract and other legal issues related to unemployment benefits or compensation if they have been laid off.
In most cases, franchisors and franchisees are required to cooperate and follow certain procedures before a franchise agreement can be terminated. For example, in most agreements, franchisors are obligated to provide notice and an opportunity to respond to an alleged breach of contract. The terms of the franchise agreement will specify how a franchisor must go about managing a termination event.
What Rights do Franchisees Have if They are Laid Off?
If a franchisee is laid off, they are legally entitled to either:
1. Receive severance pay and other benefits as outlined in the franchise agreement, or
2. Reimbursement of any investments in the franchise, through the provision of “reasonable compensation” to the franchisee from the franchisor.
As mentioned above, it is important for franchisors to review and understand the franchise agreement and applicable state and federal regulations before proceeding with any layoffs. It is also important to remember that a franchisee may have a right to challenge the franchisor’s decision to terminate their agreement or limit their access to services due to a corporate layoff.
Do Franchisees Need to Sign a Non-Compete Agreement?
Generally speaking, yes. Most franchise agreements will require franchisees to sign a non-compete agreement with the franchisor. The non-compete agreement seeks to limit any new or current businesses the franchisee may own if they are laid off, in order to protect the franchisor’s intellectual property and business interests. Franchisees must also understand and abide by any confidentiality and trade secret clauses within the non-compete agreement.
What is the Cost of a Franchise?
The cost of a franchise can vary greatly depending on the franchise and the franchisor’s expectations. Generally, typical franchise investments range from $10,000 – $250,000. Factors such as: start-up costs, technology requirements, franchise fees, training hours, and legal fees, will all determine the total startup cost of a franchise. It is important to note that owning a franchise is not a get-rich-quick scheme; with any business investment, it is important to be aware of the financial risks and costs associated.