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Franchisee Attorney Robert Zarco on Buying a Franchise

Robert Zarco, senior partner of Zarco Einhorn Salkowski & Brito, a Miami-based law firm that represents U.S. and international franchisees, speaks about the power that a franchisee gives over to a franchisor when he or she signs a franchise contract.

It is a good interview by Forbes' reporter Amy Feldman that includes words of caution for any would-be franchise buyer. Here are excerpts, with sections that I have highlighted:

Feldman: Why do franchisee-franchisor relationships go bad?

Zarco: The number one source of disputes stems from lack of communication. The franchisor has a concern with the franchisee, and does not voice that concern. The franchisee has a concern with the franchisor, and is intimidated by the consequences of complaining. Disputes may start with the franchisor trying to undertake aggressive expansion and growth strategies to saturate markets without regard for the impact it would have on existing franchisees. There are claims that arise from the franchisor making representations in the franchise disclosure document that are either untrue or misleading.

Feldman: Are there certain franchisors that people should be wary of being involved with?

Zarco: I'm not going to say who they are. I don't want to be sued for defamation. Franchisees should take no comfort from the fact that franchisors are well-established and have a powerful name. It is common for franchisees to lose not only their investments in the franchise but their entire net worth when being required to sign personal guarantees.

There is also this insight into a hot lobbying topic in the industry, the National Labor Relations Board versus McDonald's. The NLRB is looking into whether McDonald's has crossed the line in controlling store employees of so-called independent businesses. McDonald's could be deemed a joint-employer with the franchisee, who in the past has been solely in the hot seat, a hundred percent liable.

Feldman: Last year, the National Labor Relations Board broadened its standard for determining joint-employer status in a decision involving Browning-Ferris Industries, and another case involving McDonald's has upped the stakes for franchising. What does this mean for franchisees?

Zarco: It's a really big deal right now because franchisors are crying Armageddon. Franchisors have started intimidating franchisees into submission, making them believe the decision is bad for them. It's fear and rhetoric over nothing. Over the years, franchisors have been imposing greater and greater restrictions on franchisees about what they are allowed to do and not allowed to do, and this has caused them to be exposed as joint employers. The NLRB decision is actually favorable to franchisees. Franchisees should take advantage of this opportunity to get franchisors to the table and renegotiate their agreements.

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.