By Gordon Drakes, Fieldfisher
Franchising is a complex area of law and, aside from ensuring that your 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/anti-trust law, trade mark and other IP law, confidentiality and trade secrets law and data protection law.
All of these laws and legal principles impact on the legal and commercial franchise relationship and need to 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. Get the right specialist advice and you 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 for your business 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 a number of lawyers claiming to have worked on franchise deals, but who on closer inspection are really just “dabbling” and are not franchise specialists at all.
Below are five suggested criteria for selecting a franchise lawyer.
1. Do they walk the walk?
Referrals from other franchisors or professionals in the franchise sector are always a good starting point.
Independent legal directories, such as Chambers & Partners, Who’s Who and the Legal500, rank lawyers and law firms for their experience in franchising, using independent research and feedback from clients and other industry professionals. If a lawyer or law firm does not feature in these rankings, you should question why that is.
Have a look at their online profiles – are they writing regularly about franchising issues and connected to other franchise professionals?
Finally, are they an active member of any national franchise association, such as the British Franchise Association in the UK? If not, they will not be up-to-date on best practice and will likely be ignorant of the principles of “ethical franchising”, which are an important part of instilling confidence amongst your franchisees and ensuring that your network functions in accordance with established best practice.
2. What is the nature of their experience and expertise?
Does their client base comprise of a majority of franchisor or franchisee clients?
This is important to understand, as a franchisee-focussed lawyer will inevitably see the franchise relationship through a different lens to a franchisor-focussed lawyer.
For example, a franchisee-focussed 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 (such as the U.S., Canada, New Zealand and Australia) 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? Your franchise lawyer should be open with you about their core competencies and the areas where they need to supplement this with other specialist colleagues – see suggestion 4.
3. 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 that has both a deep understanding of franchising as a business expansion model (at the horizontal level) and who also who has worked with businesses in your sector (at the vertical level).
Each sector will apply the franchising model differently. For example, the approach to non-competition restrictions in hotel franchising is different to the typical approach in food & beverage franchising. And, if your franchise lawyer does not understand this, you may end up with sub-standard documents and wasting time and money 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.
4. Size matters
As your network grows and matures, the legal and commercial issues you face will become more sophisticated and varied. There will inevitably come a tipping point where you require specialist legal advice on areas such as franchise litigation, data protection, competition law, trade mark protection and enforcement, corporate finance and tax, or real estate.
Whilst your 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, your franchise lawyer will be a gatekeeper to specialists in these areas and who have “hands on” experience of franchising. Realistically, this is only achievable 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 and/or your strategic objectives.
5. International platform
International expansion involves a raft of new issues to consider, from protecting your IP abroad, complying with mandatory local laws and franchise-specific legislation, localising the system, tax structuring and using the right franchise model (such as joint venture franchising, direct franchising, master franchising and development franchising).
It is therefore important to understand whether your prospective or incumbent advisors 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 you plan effectively, benchmark your commercial deals and avoid common pitfalls.
If they tick this box, find out how they go about obtaining local law advice. A network of international offices is attractive, and it is important that your franchise lawyers act as the one point of contact for coordinating advice.
However, as franchising continues to be a niche area of law, your franchise lawyer should only use local specialist lawyers on your deals, even if that means by-passing their own local office if the expertise is not there. Some “global” law firms do not have this level of flexibility, so ask the question of who is providing the local advice and what their experience is.
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 law firm can demonstrate innovation in the way 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 is appointed, review that decision every few years – as your business evolves, so will your priorities and a lawyer or law 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.