By Michael Seid, Managing Director, MSA Worldwide
In franchising, a tension often exists between the lawyer and the consultant because many issues don’t neatly fall into purely legal or purely business buckets. Franchise consultants chafe at lawyers who make recommendations concerning business strategies that they feel are inappropriate or based upon limited knowledge or research, as much as lawyers chafe at consultants practicing law without a license. Indeed, from the viewpoint of the professional consultants, the practice of business without due care by lawyers is as risky (maybe more so) for the client as is the practice of law by the non-lawyer.
Many consultants do not themselves employ lawyers to prepare documents for their clients, because they believe that it is essential for the lawyer/client relationship to be direct and unencumbered. However, to a certain extent they must deal with legal issues in working with their clients, just as lawyers must deal with certain business strategies.
For example, in-term and post term covenants are legal considerations, but ultimately it will be the business necessity of those provisions that will determine their enforceability. The term and structure of the relationship, the obligation of the parties, and the initial and ongoing fees all have legal consequence, but it will be the return on investment for the franchisor and franchisees that will ultimately determine whether the economic structure of the franchise system is sound. Operations manuals content and training are mostly business issues, but issues concerning compliance with employment laws and vicarious liability issues raise their ugly head at times.
In my company, we manage through the legal issues with emerging franchisors by using a proprietary document called The Business Overlay. The Business Overlay summarizes in logical order the relevant business and management issues agreed to with the client’s management. Typically, to some extent, our client’s attorneys have participated in the development process and have seen interim drafts of the Overlay. The legal documents are based on the Overlay, but those documents are the lawyers’ work product from beginning to end. While we will review them, our review is simply to ensure that the documents reflect the business strategies.
Franchising is, in the end, a business strategy existing in a regulatory and legal environment. Our role with clients is to help them develop strategies and tactics enabling them to maximize the value of their enterprises. To do that requires consultants to have knowledge of the law, but they never should get caught in the trap of unnecessarily practicing law.
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