A well-known fast food chain has terminated the contract with one of its franchisees in Germany, but the latter is fighting back. There are several pitfalls that one needs to be mindful of regarding franchise agreements.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: The dispute between a well-known fast food chain and a large franchisee running 89 restaurants in Germany has been going on for some time. The franchisee’s restaurants made negative headlines due to poor working conditions and hygiene shortcomings. The franchisor subsequently called things to a halt and terminated the contract. The franchisee was forbidden by means of an interim injunction from using the company logo and product descriptions, but has since lodged an objection. A court must now provide clarity.
In the meantime, several of the branches have closed and a lot of employees are worried about their jobs because the employment contracts were concluded between the franchisee and the employees. The fast food chain is unable to preserve the jobs even if it wants to.
The case is a powerful demonstration of how tricky it is to draft a franchise agreement. The rights and obligations of both contractual parties must be precisely defined, as misconduct on the part of the franchisee can damages the franchisor’s reputation. On the other hand, a franchisee may be faced with insolvency if the contract is terminated. It is therefore imperative for both sides to protect themselves in advance and consider all eventualities so as to avoid costly legal disputes at a later date.
It is normally the case that both sides benefit from franchising. The franchisor is able to expand its distribution network and the franchisee can build upon an established product as well as a tried and tested sales concept. However, the case in question shows that things do not always run so smoothly in reality. There are no uniform statutory standards for franchise agreements because they are a type of hybrid agreement that concerns many other legal fields. In addition to elements of sales and rental contracts, particular attention must also be paid to the provisions of trademark law.
In light of the large number of factors that need to be considered with respect to franchise agreements, they should not be concluded without legal assistance. Experienced lawyers with a high degree of expertise in the various legal fields concerned can contribute to the drafting of the agreement so that it is legally sound and the interests of those involved are given due consideration.
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