Being a franchisee can feel like boarding a cruise ship. You pay a premium to join a proven vessel, follow a manual to steer, and trust the captain to guide you through legal and operational waters. But what if that captain (or franchisor, in this case) stops steering in your best interest?

The other side of franchise contracts, where good faith is required, is not always discussed as much. It is the part that results in franchisees sometimes embarking on a legal battle to protect their business from the very system they bought into.

This article discusses what your rights are as a franchisee and how to tell when the franchisor has stopped acting in good faith.

The Duty of Good Faith In a Franchise Contract

The franchise agreement is largely different from many other agreements you know and lengthy. “In practice, the franchisor holds most of the power, controlling everything from day-to-day operations to how and when money changes hands,” says Jason W. Power of Franchise.Law. However, with this upper hand come certain responsibilities, like the duty to ensure fair dealing and act in good faith at all times.

To act in good faith, the law requires franchisors to make key disclosures regarding the franchise through a Franchise Disclosure Document. Although the contract does not always state the need to act in good faith, it is an implied term of signing a franchise agreement.

What Does the Duty of Good Faith Entail in a Franchise Agreement?

The duty of good faith means both sides of a contract must act honestly and treat each other fairly while fulfilling their agreed responsibilities. It also implies that they must not do anything that undermines the spirit of the agreement. In a franchise, it could mean that the franchisor cannot sabotage your territory by opening competing locations nearby or refusing to supply products that are contractually required.

It also means the franchisor cannot deliberately withhold support or training, nor create unreasonable new fees or rules mid-contract. Courts have held that such conduct may constitute a breach of the implied duty of good faith, even when the franchisor acts within the literal language of the contract.

Legal Recourse Available to Franchisees

A common and key component of many franchise agreements is the need to resolve disputes through arbitration or mediation. This does not completely rule out litigation as a means to seek redress, but limits it to it as a last resort. Where you suspect there has been a breach of good faith, start by reviewing the terms of your contract.

When you are clear on the contract terms, the next step is to send a formal notice regarding the breach. In addition, you should request any possible internal mediation, if available. Where negotiation fails, you can consider arbitration or litigation to seek additional claims like unfair competition or deceptive trade practices.

Can You Sue After a Good Faith Breach?

Yes, you can, despite the big pockets and sometimes solid legal shields many franchisors have. It is interesting to note that every year, franchisees take on franchisors who act in bad faith towards them and win the case. What you need at that point is proper legal guidance and a strategy that can help you get justice for the bad faith actions towards you.

Conclusion

If you are thinking of becoming a profitable entrepreneur, franchising is a path worth considering. However, you must know that good faith is vital to any franchise relationship. Where you spot a breach of this duty, there is a legal recourse available to you. If you are confused about how to use the laws to protect yourself, speak with an attorney today.