This is a very good question.
My quick answer would be: It depends on how smart franchisees are versus the klutz’(s) bluster.
Franchise systems don’t explode from lawsuits or adverse publicity: They simply get collapsed with the franchisees’ money spirited away.
No franchisor fights to protect a loser trademark: It’s too cheap to build another. What’s a franchisor anyway: A telephone, some contracts and a bunch of second-rate guards.
There are 3 types of franchisees:
- the happy (happy with ROI, debts paid),
- the touch-and-go (barely ok), and
- the desperate (hemorrhaging cash daily: they want out).
Principle: If the leasing arrangements are filthy enough, a group of #3 franchisees could band together to have a s.o.b. franchise lawyer negotiate their exit (releases: both ways).
For example: Let’s say 30 recruiting franchisees chipped in, say, $3,000 to buy their permanent freedom (out of the industry).
Question: How would the other stakeholders likely react?
Franchisees #1 & #2: Some may join the exit group but most would hate what #3 is doing. They would apply huge pressure on the franchisor to let them go, with no strings attached. They realize that head office are scum but don’t want to risk thier trademark being dragged through the mud.
Leasing Company(ies): There are two kinds that are confusingly named:
(1) The kind that signs up the fresh meat. They are really a subcontracted marketing arm of the franchisor, created to fold up like a cheap suit when the fraud sausage explodes. Under any half-assed franchise law they would be considered a franchisor associate and be held legally responsible for all of their misrepresentations. They provide the franchisor’s TLC.
(2) A leasing collection company that didn’t count on a blog to expose a ticking fraud bomb. They bought illegal leases (mixed intangible with tangible assets: this is illegal). (1) goes on to sell the next sucker into future bankruptcy while (2) looks like Bambi on FranchiseFool’s highway. The lease can be assigned an infinite number of times depending on which frontier is crossed.
Being confronted, both (1) and (2) would shut up and never take action, especially since the franchisor and a lease company share office space.
This is reinforced when a little birdy told me that a franchisee simply walked away (no lease payment, no royalty) in October 2008 (no attempt to call or collect). Also they realize that the exiting group could turn around and sue them into the 22nd century for using capital leases to finance intangible assets. IRS issues, folks.
Franchisor: They’ll sign the release papers that the group’s lawyer presents in very short order. They will have received hundreds of emails and telephone calls. The franchisees #1. & #2. (who are actually still paying royalties since sales have dried up) will grab them by the short and curlies and impress upon them their desire for the franchisor to play this straight (a first in their God-forsaken life).
It would be unnecessary for a franchisee advocate to ever have to reveal who’s who in this hypothetical scenario. No fuss, no muss. Look the other way as a few slip under the wire and head for the forest.
Of course everything’s cool unless anyone is ever, even unintentionally or remotely, threatened for exercising their freedom of speech rights.
If you want out, just let me know.