A franchisee who sued his franchisor for fraud learned the hard way why it’s important to read the Franchise Disclosure Document, cover to cover, before buying a franchise. The California Court of Appeals ruled against him because the disclosure document Big O gave to the franchisee before he bought contradicted each and every one of his claims.
Under the FTC’s Franchise Rule, a franchisor is permitted, but not required, to answer that all-important question asked by would-be franchise buyers: “how much money can I make?” Sometimes, the franchisor’s answer to that question can generate litigation.
Here’s an interesting case I recently came across. It features a franchisee based in Italy suing its California-based franchisor in California, alleging violations of California’s franchise laws.
The Federal Trade Commission recently issued new guidance that will affect how franchisors disclose whether they grant exclusive territories to franchisees.
Some franchisors continue to use a different Franchise Disclosure Document for each state that has a franchise or registration law. This approach increases the administrative burden on franchisors, as well as the risk of unintentional violation of a state’s franchise law where more than one state law applies to a transaction.