Franchises have been the topic of prior posts. Some have discussed the opening of one and some have discussed the relationship between the franchisee and franchisor as they build a successful business. What about when the franchise on a whole struggles to stay afloat? This possibility needs to be planned for as well during the initial stages of drafting the agreement.

At the peak of success, the sandwich franchise system Quiznos had over 5,000 units from stands in mall food courts to stand-alone shops. That number has drastically been reduced in the past couple of years, their traditional restaurants adding up to only 1,600. In this instance, it appears as though the franchisees were the ones who suffered first.

Part of the most recent financial issues come as a result of a settlement reached with thousands of the company’s franchisees to end a class action lawsuit. According to the group of franchisees, the company made decisions that violated organized crime laws.

While the charges may sound like an old mob movie, they are not. Instead, they are actions that could take place for some time without the franchisee owners ever aware that a crime has taken place. In this instance, the franchisees said that the company sold mandated essential goods to them at prices higher than their market value. The claims also stated that the company fraudulently sold franchise agreements and participated in other activities that amounted to racketeering.

The settlement of the class action was for $206 million, only $6 million of which was paid to the franchisees who filed the suit in 2010.

Source: Blue MauMau, “Quiznos Disclosure Shines Light on Settlement,” Janet Sparks, Dec. 13, 2012