Acting on franchise matters can be particularly risky for lawyers. While some franchisors are large multinationals, many are small, relatively unsophisticated businesses. They are running a “mom-and-pop-style” family business; they are usually financially (and more importantly, emotionally) invested in the business, and they have scraped together their life savings to open the franchise. These characteristics frequently result in “sympathetic” claimants.

The greatest area of risk involves the onerous disclosure requirements imposed upon a franchisor by the governing statute, the Arthur Wishart Act. Inadequate disclosure entitles a franchisee to rescind the franchise agreement within two years and to extensive damages, including the return of its investment in franchise fees, inventory and equipment costs, as well as compensation for any losses incurred by it in acquiring, setting up and operating the franchise business.

Faced with such a heavy damages claim, a franchisor will often claim against the lawyer, alleging that the lawyer either drafted an inadequate disclosure statement or failed to warn the franchisor of the consequences of inadequate disclosure.

Download the full Fact Sheet (PDF) for detailed information.

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