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Log In / Register | May 27, 2018

Franchise Systems Are Making Headlines for the Wrong Reasons, Franchisees Deserve Change

In recent months, Panera Bread has experienced a massive data breach, Domino’s Pizza has been embroiled in a visa fraud scandal, Waffle House's former CEO has gone on trial for alleged sexual extortion, and there have been reports of "mayhem" within the Subway franchise system.

When franchises make headlines for the wrong reasons, what are the implications for franchisees, and what rights, if any, do they have available?

When Bad Publicity Affects the Entire Franchise System

While it may have previously been the case that there was no such thing as bad publicity, that old adage does not necessarily hold true today. In today’s world of click-bait headlines and instant social media backlash, bad news (or apparent bad news) can spread quickly, and this can have devastating impacts for businesses. Particularly when customers do not understand the nature of franchising, when the franchisor – or even a single franchisee – does something to cause an uproar, it can affect sales at franchised outlets across the country, if not around the world.

Take, for example, the recent data breach at Panera Bread. According to the Washington Post, some experts are estimating that as many as 37 million customers may have had their personal information compromised due to a vulnerability in the franchisor’s website. With its premium pricing and notoriously long lunch lines, Panera Bread’s loyalty program and online ordering have become key benefits for many customers. But, will customers be willing to put their privacy at risk to save time and a few dollars at Panera Bread? Time will tell; and, if they are not, the system’s franchisees will be the ones to suffer the primary consequences.

Then, there is the story about alleged visa fraud at Domino’s Pizza last year. With headlines blaming the “Domino's Pizza chain” and referring to the “Domino’s scandal,” it is easy to draw the assumption that the issue is much larger than it is: In reality, it appears that the alleged scandal involved a single multi-unit franchisee. Yet, as reported by Business Insider, when the story broke, Domino’s corporate stock price fell by more than six percent.

What Options Are Available to Affected Franchisees?

When national headlines negatively impact local franchisees, determining what options are available requires a careful assessment of the facts and law involved. If franchisees lose sales because of a data breach at the corporate level or because the company’s former CEO appears on a sex tape, this is certainly a loss that justifies a remedy. However, whether it makes business sense to seek damages in court is another question entirely. Can the losses stemming from the bad publicity be quantified? If so, do they exceed the costs of arbitration or litigation? Maybe, maybe not. But, for franchisees who are suffering financially due to factors beyond their control, these are certainly questions that deserve to be answered.

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