by Kim, Lahey & Killough Law FirmFranchisees as Third-Party Beneficiaries
Franchise attorney Emily Bohan chosen for publication in the prestigious ABA Forum on Franchise Law Journal—explores Third-Party Beneficiary Rights in Franchise Law
Kim, Lahey & Killough attorney Emily Bohan and Hannah M. Leiendecker of the Faegre Drinker firm in Minneapolis, MN published an article in the latest edition of Franchise Law Journal with the American Bar Association. The article, “Franchisees as Third-Party Beneficiaries to Franchisor’s Agreements with Other Franchisees or Vendors” sheds light on the complex world of third-party beneficiary rights in franchising and examines how individuals or entities not directly party to a contract may still enforce its terms under certain circumstances. This article was published immediately prior to the annual meeting of the ABA Forum on Franchising, at which Emily was in attendance last week.
Executive summary:
A significant impact on Dispute Resolution: Third-party beneficiary rights can play a crucial role in franchise disputes, often determining whether a case has any remedy at all. This underscores the importance of understanding these rights for all parties involved in franchise relationships.
Clear Intent: Courts typically require clear evidence that the contracting parties intended to benefit the third party. This high standard emphasizes the need for precise language in franchise-related contracts.
Franchisee Enforcement of Vendor Agreements: In some cases, franchisees have successfully enforced agreements between their franchisor and vendors as third-party beneficiaries. This highlights a potential avenue for franchisees to protect their interests.
Employee “Poaching” Restrictions: Some franchisors have utilized third-party beneficiary rights to limit employee recruitment between franchisees. However, Bohan and Leiendecker note that this practice faces increasing legal scrutiny and potential antitrust challenges.
Rare Vendor Claims: While uncommon, there are instances where third-party vendors have successfully claimed benefits under franchise agreements. These cases often hinge on exceptionally close relationships between the vendor and franchisor.
Highly Fact-Specific Nature: Bohan and Leiendecker emphasize that third-party beneficiary cases in franchise law are typically unpredictable and heavily dependent on specific circumstances. This unpredictability underscores the need for careful contract drafting and legal guidance.
The full article provides a thorough examination of relevant case law and offers practical insights for franchise industry professionals. It serves as a valuable resource for franchisors, franchisees, and their legal counsel in navigating the complex web of contractual relationships inherent in franchise operations.
Bohan and Leiendecker emphasize that these cases are highly fact-specific and often unpredictable. Both recommend that franchisors and franchisees carefully consider potential third-party beneficiaries when drafting contracts. They suggest a proactive approach and recommend that parties mitigate uncertainty and reduce ambiguity by explicitly stating their intentions regarding third-party benefits within their contracts.
The full article, “Franchisees as Third-Party Beneficiaries to Franchisor’s Agreements with Other Franchisees or Vendors,” is available in the current issue of the Franchise Law Journal.
Copyright 2024. Published in The Franchise Law Journal, Vol. 43, No. 3, Fall 2024, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Emily Bohan is an attorney in the Greenville, S.C. office of Kim Lahey & Killough. Hannah M. Leiendecker is an attorney at Faegre Drinker, practicing in the Minneapolis office.