Franchise Agreements and Franchise Disclosure Documents are dense and complicated documents. They are also regulated by federal and state government agencies. Parties commonly enter into a business relationship without even being aware that their relationship is actually franchise, subject to all the relevant regulations – the “accidental franchise.” This can make the accidental-franchisor the target of government investigation. At times, the accidental franchisee can use the lack of compliance to void the entire relationship and its own liability to the other party.
In established franchises, because of the volume of responsibilities arising from the agreement, there is a great deal of room for unintended breaches and potential liability by both parties. At times, a franchisee can argue the larger entity, the franchisee, abused its strength in the relationship. Other times, a franchisor may claim that the franchisee failed to comply with restrictions or reporting requirements.