Three franchisees of the fast-food chain Pie Face have threatened to launch legal action against the franchisor on grounds of being misled over costs and profits when they first purchased their respective franchises.
The franchisees claim their trading figures during the first seven months of trading were totally different to those initially projected by the franchisor in selling the franchise to them, and that the franchisor had no grounds on which to have based their initial projections.
The franchisor is however standing firm and attributing the franchisee’s difficulty to tough retail conditions and denies providing any misleading or inaccurate cost information. Its CEO Wanye Homschek told SmartCompany “All I can say is that we’re in the business of franchising, and not everyone is going to be a good franchisee”.
Lessons to Learn – A Franchise Dispute
The accusation of the franchisees is not new to franchising and shows two things are imperative in the industry:
- Franchisor’s must take steps to ensure representations made to prospective franchisees are accurate and can be readily verified; and
- Prospective franchisees need to ensure they conduct a thorough due diligence of the franchise before purchasing a franchised business, and retain professionals to assist them where appropriate.
Franchise disputes are both costly and time consuming. It is therefore essential that both franchisees and franchisors seek the advice of legal professionals who specialise in this area to minimise the risk of disputes arising in the future.