The Superficial Franchisor with Inconsistent Know-How

The Situation: The Affiliate is Dissatisfied with the Franchisor’s Service

An affiliate signs a contract to open a franchise business in the food sector. However, despite the enticing promises and assurances outlined in the contract, the affiliate immediately encountered a significant problem that hindered the proper management of the business. The affiliate had not received adequate training, nor any meaningful assistance, despite the franchise contract guaranteeing these provisions. Consequently, the affiliate turns to us for advice on how to terminate the contract and obtain a refund of the investment, which is now at risk of being lost.

Problem: Defining Inadequate Training

The issue is to determine whether there are indeed grounds to somehow resolve this predicament. In fact, the franchisor had provided a certain type of training and some level of assistance, albeit minimal. So, when can the franchisor’s training be considered adequate, and when does its inconsistency constitute a contractual breach? What evidence is necessary to tip the scales one way or the other? Perhaps the affiliate’s perception of inadequate assistance is simply due to their inability to implement what was learned during the training phase.

Solution: Analysis of the Contract, Operational Manual, and Facts

The first step was to gather all the documentation related to the affiliation: the contract, operational manual, as well as email exchanges between the parties. Then, the analysis began.

Upon reviewing the documentation, it became evident that:

  1. Although training was stipulated in the contract, it had been conducted without a specific program and within just a couple of days. This was highly unlikely for a restaurant format. By doing so and remaining vague, the franchisor provided the affiliate with a solid legal basis to contest the contractual breach. This lack of training, evidenced by the absence of meeting minutes, attendance sheets, training plans, or even emails or messages confirming days and times, could be described as a glaring deficiency.
  2. The analysis of the consistency of the know-how transferred (or attempted to be transferred) through the written material provided by the franchisor revealed several shortcomings. The operational manual provided to the affiliate was found to be incomplete in various areas, and although it included recipes and food costs, these were rudimentary and incomplete. This written evidence further bolstered the legal argument for the inconsistency of the know-how, which had not been adequately transferred not only through the absent training but also through the inadequate manuals, which are supposed to represent the franchise’s intellectual capital.

Based on the above premises, we felt confident about the overall success of the case, and indeed, the franchisor did not proceed beyond the negotiation phase.

In that context, and in light of recent judicial orientations, the affiliate was able to completely release themselves from the non-compete agreement and obtain a partial refund of the investment made for the opening.

Thus, it was not a Pyrrhic victory but a brilliant and timely resolution that prevented further burdens on the affiliate. It was an opportunity to restart in the business and restaurant world, free from any constraints with a franchisor who had proven to be a poor representation of the entire industry.

In conclusion, it is important to note that the deficiencies of the franchisor highlighted in this case are not minor. They constitute serious contractual breaches that fundamentally and totally undermine the affiliation relationship. Being a franchisor means being responsible and present (within contractual limits, of course), and regardless of mistakes made, the key is to be ready to rectify them. As the great Muhammad Ali said, “Inside of a ring or out, ain’t nothing wrong with going down. It’s staying down that’s wrong.”

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