Legal Eagles Tackle FDD Bloat, Complexity
Crack open your franchise disclosure document sometime and do a page count. These documents have gotten absolutely massive and complex, and some franchise attorneys want to do some major trimming.
The Jersey Mike’s FDD is 289 pages, Office Evolution and CoreLife Eatery both have 230-page FDDs, and the Five Guys FDD is 348 pages. Then there’s Jiffy Lube, whose FDD spans an astounding 1,060 pages, almost 50 pages longer than George R. R. Martin’s massive fifth book in the "Game of Thrones series"—and it doesn’t include any dragons whatsoever.
These documents have become monumental tomes of jargon, glossaries and enough numbers to make one’s head spin. Basically, the modern FDD is impenetrable for the typical person. And that’s a problem. To appropriately disclose the inner workings of a franchise, the franchisee should be able to actually read the thing.
Peter Lagarias, a partner at franchise-focused law firm Lagarias, Napell & Dillon, and a Franchise Times Legal Eagle, said these documents are so complex, a pretty sophisticated peer sent him a case saying he just couldn’t figure it out.
“He worked for a uranium mining company and he said that my biggest case we were working on in the mining company was a dispute with Westinghouse over a uranium supply contact,” said Lagarias. “This was a multi-million dollar dispute, the uranium contact he had for this huge deal paled in comparison to this franchise document. It was not nearly as long or complex, so there you go.”
He said he takes issue especially with the pages and pages of disclosures and cover-your-butt language that peppers almost every FDD out there. The language is designed to protect the brand from almost any scenario, but at the end, all those disclosures make for an almost useless contract.
“What are we having the disclosure process for? It’s to tell people information that people can rely on,” said Lagarias. “My concern is that the franchise disclosure process with all these disclaimers has been turned into an item that they could work a fraud with, and I don’t think that should happen, period.”
He said he will be watching a review of a FTC rule around the disclosures that is set for this year that would make those disclosures more readable. And while it’s become all about protection for the franchisor, it could also mean fewer disputes from franchisees claiming financial misrepresentations were buried in the overwhelming FDD.
Keith Kanouse, founder of Kanouse & Walker, P.A. and another Legal Eagle, said he’d love to simplify both ends of the process with a single franchise registry. That would ensure that franchisees have a single source for research and franchisors have to waste less time with the various state rules by plugging the FDD into a single system—even if it means he loses out on some fees.
“This is not in my best interest, but if you had this streamlined process I think the states with franchise relationship laws could focus on enforcement so there’s not fraud going around instead of nitpicking an FDD that nobody is going to read,” said Kanouse, who wrote about the idea in the American Bar Association's Franchise Law Journal back in 2007. “The franchisors would save thousands of dollars in attorney fees, and their sales process would not be impeded and it’d be good for the franchisee because they could do their own preliminary research.”
These are just two opinions about how to simplify the process, but there are a lot of lawyers on this year’s Legal Eagles list looking to make the franchise world a little more manageable. Take a look at the full list and our annual deep-dive into some of the most pressing franchise legal topics in this year’s Legal Eagles coverage.