Collective Action Clauses: FDD Flexibility for Franchisors
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When working with start-up and established franchisors, once critical FDD development issue that we frequently consider relates to "FDD and Franchise Agreement flexibility". That is, as a franchise lawyer, I have learned long ago that franchise systems develop and evolve so, over time, today's franchise system will look very different four, three and even two years following the initial franchise launch. One franchise system component most susceptible to change being regional and national promotion and marketing incentives. So, when it comes to developing an FDD, frequently we look to the implementation of "Collective Action Clauses" to serve as a sort of net to catch unanticipated advertising and marketing needs.
Collective action clauses, permit a franchisor to implement unanticipated marketing programs and fees where the particular marketing initiative is put to a vote by franchisees and where majority approval is obtained. Once approved, all franchisees (including the ones who voted against the action) are bound to the new measure.
To give you a better feel about what I am talking about, the following is an example of a collective action marketing clause:
Special Advertising and Promotional Programs
In addition to Marketing Fund contributions set forth in Sections __ and ___ and Franchisee’s local advertising and Area Cooperative obligations under Sections ___ and ____, Franchisee agrees to participate, during the Term of this Agreement, in any national, regional, or local advertising or promotional programs that have been approved by a majority of [Franchisor’s] franchisees operating within the particular geographic area and, to the extent there are insufficient monies in the Fund or one or more Area Cooperatives available for or allocated to such programs, to promptly remit the required funds to an advertising account to be maintained by [Franchisor] for such purpose.
Consider that Collective Action Clauses, when structured and implemented properly, add significant flexibility to franchise agreements and the development of a franchise system. Does your franchise agreement contain a collective action clause?
