If you are the owner of a franchise business or if you are considering buying into a franchise, it would help to become familiar with 2014 franchise laws so that you don’t encounter any obstacles that could cause your entrepreneurial dreams to come crashing down around you. To begin, you should keep up with any recent developments in the field of franchise law. Case in point, there is a recent case involving the popular hardware chain Ace Hardware and a lesser known business called Avon Hardware Co. located in the state of Indiana. This case has managed to set a precedent that could cause trouble for you, the franchise business owner, later on. For that reason, let’s delve into the case of Avon Hardware Co. v. Ace Hardware Corporation to see how it applies to you.
The Facts Behind the Case
Most 2014 franchise laws are in place to protect you, the franchise owner, as well as anyone who may want to become part of your franchise business. The case of these two hardware businesses is no exception. The history of the case stretches all the way back to the year 2006 when Ace Hardware provided Avon Hardware with a ‘pro forma’ document that contained sales and cash flow figures in connection with Avon’s purchase of Ace Hardware’s franchises. This document was provided pre-sale, which means that it probably had a hand in solidifying Avon’s decision to actually buy into the business.
This pro-forma document included annual sales figures, profit projections and estimates of first year earnings. The problem is, Avon failed to reach the sales figures and earnings outlined in the document and the company called foul. Avon sued Ace and claimed that the hardware conglomerate doctored the numbers and inflated the figures to make them look far more enticing than they actually were.
The Outcome of the Case
To win its case, which would have altered franchise laws forever, Avon had to prove that Ace Hardware withheld valuable information or changed the information to make it look more favorable prior to the franchise deal taking place. Avon failed to do so. The court found that Ace not only provided accurate figures, but the company also provided many warnings to Avon that the numbers might not be achieved under certain conditions.
Even though Avon didn’t win the case it brought against Ace Hardware, the case still represents an important lesson for franchise owners. As we stated in the beginning, franchise laws are in place to protect all parties involved. If you hope to remain within 2014 franchise laws and you don’t want to be sued in the future, make sure that all of your pre-sale projections that you provide to future franchise partners are accurate and contain all the appropriate warnings.
The Importance of Terms
Another important case that is currently affecting franchise laws this year, is known as Hamden v. Total Car Franchising Corporation. Hamden signed a franchise agreement with Total Car back in 1996 that prohibited franchisees from participating in paint restoration businesses for two years following the termination of the agreement. Hamden also signed a non-competition and confidentiality agreement with Total Car.
The problem came when Hamden continued to operate a paint restoration business at the former franchise location after the franchise agreement expired in 2011. Total Car then sued Hamden citing a breach of contract.
The court actually ruled in favor of Hamden, because it stated that the term ‘termination’ was not the same as the term ‘expiration’. The court said that Total Car should have stated explicitly in its agreement that the words termination and expiration were one in the same. Since Total Car failed to spell things out clearly in its franchise agreement, Hamden won the case and, because of that fact, franchise laws were forever changed.
The lessons here are clear for franchise owners and franchise partners. Make sure you get the best lawyers to draw up your paperwork so that all terms are spelled out clearly and correctly. If you are getting ready to sign paperwork as a franchisee, hire a lawyer to peruse the paperwork to make sure you are protected no matter what happens. Your enterprise will be better for it and you will potentially avoid expensive litigation years down the line.
These are just two cases that have affected 2014 franchise laws, but they won’t be the only ones. As the year continues, as more franchise businesses emerge and as more franchisees get involved with businesses of interest, we should expect to see even more influential cases that could change franchise laws forever as we know them.
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