Minneapolis franchisee lawyer Ron Gardner discusses the benefits of being franchisee instead of just a dealer.
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One of the reasons that we look at whether or not someone is a franchisee even when they don’t think they are or they think they’re a dealer or they think they’re a licensee or a distributor, is because in many states there are franchise protection statutes that can help people in ways that they won’t be helped if the only legal questions that exist for them is in a document between them and the manufacturer. For instance, a few years ago we had a client who came in, he’d gotten a notice that he was being terminated in 30 days as a hot tub distributor. And I took a look at his agreement and sure enough he was able to use the trade name, the trademark of the hot tub manufacturer. The hot tub manufacturer and he both made money if he sold more hot tubs so there was a community of interest and we happened to be in a state where that was part of the test.
And then in terms of the fee, the franchise fee, there was a provision that required the franchisee to pay into an advertising fund, the co-op advertising fund. And then if the franchisee spent the money by the end of the year he got a refund, but if he didn’t spend the money by the end of the year the franchisor kept the money. And this particular dealer of hot tubs hadn’t spent all his money several years in a row and so the franchisor actually had collected from the franchisee through this ad fund, this indirect fee, thousands of dollars over the course of a few years. And so what we were able to do is to go into court and say look, they think they’re a dealer but the trade name is there, the community of interest is there, the fee is there, this is franchisor. And that means that in order to terminate this guy you have to good cause, you have to have notice and opportunity to cure. You have to give him 90 days notice and the franchisor had said straight up look, we just don’t want to do business with him we don’t have any other reason.
So they didn’t have good cause, they hadn’t given him notice, there was no default, we got an injunction. Franchisee or hot tub dealer who’d gotten a notice that says you’re out of business in 10 days, back in business and still in business today as far as I know. So, that’s a very clear example of why somebody wants to be a franchisee rather than a dealer or distributor.