Fair Dealing Statutes - Tempest In A Tea Pot

Author Richard Solomon is a conflicts and crisis management lawyer with 50 years of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management.

The sky is once again falling, says the IFA. The sky is once again falling says the ABA. The sky is once again falling say the large firms that make tons of money whining about things like crocodile tears, knowing they will get to bill millions by scaring the pants off franchisors.


Supposedly the "worst" of these fair dealing statutes is the California statute.

Well, you can all relax for the following reasons.

Very few franchisors engage in the abuses to which the statute is addressed. Most of the miscreant companies are and have been abusive since their inception and are extremely low quality investments anyway. The reputable franchisors need only make a few minor prophylactic adjustments and thereafter just stay awake to how their systems are being governed. Even without the statutes, no franchisor should assume that its system and agreements are so perfect that scant attention has to be paid to effect/impact of governance quality.

Even in the tougher situations, the statutes impose fair dealing obligations bilaterally, and in my 54 years of franchise practice I have never seen a situation in which one party was totally in the wrong and the other totally in the right.

There will be litigation under these statutes in few situations. These include intentionally abusive franchisors with no regard to operating quality at the franchisee level; franchisees caught cheating on the contract and the operations manual that sue hoping to scare off the consequences; franchise litigation that gets through the screen due to franchisors' failure to assess their situations now to see what tune up adjustments need to be made in order to be in better defensive position should difficulty arise.

There are no big fee situations in this new development if the issues are competently addressed, and perhaps that is what the large law firms are so upset about when you really get down to it. No significant changes in franchisor operations will be called for in most companies.

Franchisee lawyers who think of bringing cases under these new statutes will need to pick their fights very carefully, as the early cases will get a good deal of attention. Attentive franchisors will probably not be in these early cases assuming that they do competent due diligence on possible weak spots in their systems. Since this kind of self scrutiny must be done regarding many business issues as life progresses. no undue burden or expense should be contemplated.

Any franchisor getting a "the sky is falling" scenario from its lawyers should seek out second opinions.

The industry has weathered many tougher situations than this. Those who know what to do and how to do it will cause you not to have to lose any sleep over it.