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Contracts may allow franchisor to make sweeping changes

On Behalf of | Jan 23, 2019 | Contracts

Franchise law in Oregon and elsewhere can result in dissension and litigation between the parties. Franchise agreements are contracts and as such are governed by contract law. The agreement provides for the use of the franchisor’s brand and products by the franchisee. The franchisor usually exerts strong control over the franchisee under the contract because the franchisor wishes to maintain a systematic way of making, marketing preserving and selling its brand. 

In return for providing very specific details and instructions on how to set up and operate the business, the franchisor takes a percentage of sales revenues. The process can be enormously helpful and profitable to both parties. However, there are also some innate problems that often arise in the context of the franchise relationship.

For example, take a look at the dynamics surrounding the McDonald’s hamburger franchise in recent years. The hamburger chain is one of the biggest franchise operations in history, but the company recently has been at the center of intensive internal disputes with its franchisees. That is due to a massive remodeling and restructuring plan that has been put into place by McDonald’s. 

For starters, the company brought in fresh beef as the main component of its burgers. It cut down on the number of district managers, which has caused complaints that these managers don’t provide much help to local franchisees anymore. Every restaurant has been marked for a physical makeover and the chain is adding self-order kiosks.  Although McDonald’s pays 55 percent of the cost of the remodeling, the franchisee must pay the rest.

The rapid and extensive depth of the changes created the formation of a National Owner’s Association to protect franchisees. It operates in Oregon and the other states. The organization is trying to stop the frantic pattern of changes and enter negotiations with the franchisor. The contracts currently existing are written broadly and give McDonald’s wide authority to make changes. However, the collective power of the franchise owners can present a strong counter to the ability of the company to make such drastic rapid-fire changes.