Franchising is a complex area of law and, aside from ensuring that a business is franchisable and ready to franchise, choosing the right franchise lawyer is a key strategic decision.
Franchising law is a patchwork of different commercial laws and regulations, including:
- contractual principles;
- consumer protection law;
- competition and antitrust law;
- trademark and other IP law;
- confidentiality and trade secrets law; and
- data protection law.
All of these laws and legal principles affect the legal and commercial franchise relationship and must be woven carefully into the franchise agreement, the supporting documentation and the processes which support the franchise network.
The legal documentation, and ongoing legal advice, are fundamental building blocks of any franchise network. The right specialist advice can maximise the chances for long-term success and minimise the risks of incurring big expenses and liabilities down the road.
However, choosing a franchise lawyer who is a good fit can be difficult. As the franchising model has taken root in the economy, the market for franchise legal services has become crowded, with other professionals occasionally downplaying the importance of legal advice and numerous lawyers claiming to have worked on franchise deals, but who on closer inspection are just dabbling and are not franchise specialists.
Below are five suggested criteria for selecting a franchise lawyer.
Referrals from other franchisors or professionals in the franchise sector are always a good starting point.
Further, independent legal directories rank lawyers and firms for their experience in franchising, using independent research and feedback from clients and other industry professionals.
It is also advisable to look at online profiles – does the lawyer or firm regularly write about franchising issues and are they connected to other franchise professionals?
Finally, are they an active member of any national franchise association, such as the British Franchise Association in the United Kingdom? If not, they may not be up to date on best practice or the principles of ethical franchising, which are an important part of instilling confidence among franchisees and ensuring that networks function in accordance with established best practice.
What is the nature of their experience and expertise?
Does the lawyer's client base primarily consist of franchisor or franchisee clients? This is important to understand as a franchisee-focused lawyer will inevitably see the franchise relationship through a different lens to a franchisor-focused lawyer. For example, a franchisee-focused lawyer advising a franchisor may instinctively look to smooth some of the sharper edges of a franchise agreement or take a more conciliatory approach to disputes. On a one-on-one basis, this approach might seem reasonable but it is not always appropriate when a franchisor has to consider how it can efficiently and effectively monitor and police multiple legal relationships in a franchise network.
Some experience of advising both franchisors and franchisees is valuable as it enables a lawyer to see the relationship from different angles, which should translate into practical and effective advice, particularly in relation to resolving disputes.
Although less relevant in civil law jurisdictions, English law practitioners and lawyers in other common law jurisdictions tend to fall into two broad camps: litigators or transactional lawyers. It is important to understand the primary practice area of your franchise lawyer. If they primarily deal with franchise litigation, are they the right person to advise on structuring, drafting and rolling out agreements (and vice versa)? A franchise lawyer should be open about their core competencies and the areas where they need to supplement this with other specialist colleagues (see "Size matters").
Do they understand your sector?
Franchising is a business expansion model which can be applied to almost any business, irrespective of sector. However, it is important to use a franchise lawyer who has a deep understanding of franchising as a business expansion model (at the horizontal level) and has worked with businesses in the relevant sector (at the vertical level).
Each sector will apply the franchising model differently (eg, the approach to non-competition restrictions in hotel franchising is different to the typical approach in food and beverage franchising). If a franchise lawyer does not understand this, this may result in sub-standard documents and time and money being wasted on irrelevant points in negotiations.
Equally, multi-sector experience is valuable as a creative franchise lawyer with this type of experience can take best practice from one sector and apply it to another.
As a franchise network grows and matures, the legal and commercial issues that it faces will become more sophisticated and varied. There will inevitably come a tipping point where it requires specialist legal advice on areas such as franchise litigation, data protection, competition law, trademark protection and enforcement, corporate finance and tax or real estate. While a franchise lawyer should understand how these laws and legal principles intersect with the franchise relationship, no franchise lawyer can claim to be a specialist in all of these areas.
Ideally, a franchise lawyer will be a gatekeeper to specialists in these areas who have hands-on experience of franchising. Realistically, this is achievable only in law firms of a certain size and with an institutional knowledge of franchising.
The alternative is to use different lawyers or law firms to advise on these different areas, but disaggregating the supply of core franchise legal services is time consuming, expensive and risks undermining the foundations of the network or its strategic objectives.
International expansion involves a raft of new issues to consider – from protecting IP abroad, complying with mandatory local laws and franchise-specific legislation and localising the system to tax structuring and using the right franchise model (eg, joint venture, direct, master or development franchising).
It is therefore important to understand whether prospective or incumbent advisers have the relevant experience and capacity to assist effectively. If they have an understanding of how franchising is regulated internationally and have assisted other brands on their market entries, they will be able to help franchisors to plan effectively, benchmark their commercial deals and avoid common pitfalls.
If they tick this box, it is advisable to find out how they go about obtaining local law advice. A network of international offices is attractive and it is important that franchise lawyers act as the one point of contact for coordinating advice. However, as franchising continues to be a niche area of law, a franchise lawyer should use only local specialist lawyers on deals, even if that means bypassing their own local office if the expertise is not there.
The list above is not exhaustive – other equally important considerations include flexibility on pricing model, personality, partner availability and size of team and whether the firm can demonstrate innovation in the way in which it delivers legal services.
Perhaps the key takeaway is to draw up a list of criteria, rank them in terms of priority and then start looking in the right places. Once franchise counsel have been appointed, this decision should be reviewed every few years – as a business evolves, so will its priorities and a lawyer or firm which was a good fit at the beginning of the journey may not be the right companion for the next fork in the road.
