Founding Attorney
When you’ve decided to start a franchise business, you may face several legal issues, beginning with applying for a franchise, negotiating a franchise agreement, and operating the franchise. An experienced Austin business attorney can guide you through the legal side of franchising in Texas to protect your interests and ensure you fulfill your requirements under state and federal law.
Franchise Disclosure Documents
The Federal Trade Commission’s Franchise Rule requires all franchisors selling a franchise in the U.S. to provide a Franchise Disclosure Document to a prospective franchisee. Franchisors must provide the FDD at least 14 days before they may require a professional franchisee to sign a contract or pay money to the franchisor or their affiliate. In most cases, franchisors will provide the FDD upon receiving a prospective franchisee’s application. The FDD may include various pieces of information, such as:
- Background information about the franchisor, including its parent companies, predecessors, affiliates, directors/officers/executives, and how long the franchisor has been in business
- The franchisor’s prior litigation history, including whether the franchisor or its executives have prior criminal convictions
- Whether the franchisor or its affiliates have filed for bankruptcy
- Initial fees and startup costs for the franchise, including initial inventory, signage, and equipment, and ongoing franchise costs like royalties or advertising fees
- Supplier, territory, and customer restrictions
- Renewal, termination, transfer, and dispute resolution provisions
- Advertising and training
- The franchisor’s financial performance
- Information about the franchise system, including growth or turnover in franchises
- Copies of all proposed agreements
Understanding Franchising Agreements
The franchise agreement, which may encompass multiple separate agreements, governs the relationship between the franchisor and franchisee. Franchisees should have the right to negotiate the terms of the franchise agreement and should not have to sign a “take it or leave it” agreement. Future franchisees should carefully review a proposed agreement’s terms with a knowledgeable business attorney to ensure the agreement protects their interests. Key terms to review include:
- The franchise fees, including the initial fees and ongoing royalties or other expenses
- The territory rights and other restrictions, such as supplier exclusivity
- Renewal, transfer, and termination clauses
- Specific marketing and operational obligations, such as minimum advertising spend, minimum staffing levels, or required hours of operation
Employment and Labor Laws
Once you’ve secured a franchise, you should understand the employment and labor laws applicable to your business. Some of the relevant labor laws that may affect your business include:
- Minimum Wage Laws – Texas adopts the federal minimum wage, set at $7.25 per hour as of 2024.
- Overtime Laws – Texas follows the overtime rules of the federal Fair Labor Standards Act, which entitles non-exempt employees to one-and-a-half times their regular pay for each hour worked over 40 hours in a workweek.
- Workplace Safety Regulations – State and federal regulations may impose various workplace safety rules depending on the franchise’s business.
Furthermore, franchisees can work with a business attorney to understand whether they qualify as a joint employer with the franchisor. Joint employment may mean that both the franchisee and franchisor bear liability for issues related to employees at the franchise.
Taxes and Licensing Requirements
In Texas, franchisees may have various tax obligations, including:
- Sales and use taxes
- Franchise taxes
- Payroll taxes
Depending on the business, a franchisee may need various state and local licenses to operate, including business permits, food safety certifications, liquor licenses, and occupancy permits. A Texas business lawyer can review your franchise’s business to determine what licenses or permits you may need to operate.
Contact an Austin Business Lawyer Today
If you’ve considered buying a franchise business in Texas, an experienced business attorney can walk you through the legal aspects of the process. Contact The Kumar Law Firm PLLC today for an initial consultation with our team to learn more about what to expect when applying to operate a franchise in Texas.