Choosing the Right Franchise

Lessons from UPS and The Hagan Brothers

UPS-lawsuitA legal battle is heating up between UPS and two brothers who are UPS Store franchisees. The combatants are suing and countersuing and accusing each other of all kinds of illegal and breach-of-contract behavior. While it remains to be seen how this case will play out, there are a few things that we can learn from this case that might help you decide which franchise business opportunity will work out best for you.

Sales Tactics

One of the things that will probably cause the most uproar for customers is that the Hagan Brothers allege, with support from undercover recordings, that UPS pushes their franchisees to use shady and possibly illegal sales tactics. Ever been to a UPS store and wondered exactly how they charge for packages? It’s based on size of the package. If the clerk isn’t pulling out a measuring tape, you’re probably being charged incorrectly — the Hagan brothers claim it’s being done on purpose. Clerks also are pressured to say things that are false, according to the Hagan brothers, with the intention of upselling you services.

UPS claims that the Hagan brothers were the ones using predatory practices against customers, and that this is why they lost their franchises.

Whether either side is right in their allegations or not, you need to be sure you consider the sales practices of any franchise you consider signing on with. Do they put undue pressure for sales on franchisees and urge them to pass this pressure on to customers? Do they teach tricks that abuse the consumers’ trust? What about asking franchisees to lie? One way to figure out what franchisees need to do to sell their services and products is to pretend to be a customer at a few different franchises. While questionable practices in one location might be the fault of the franchisee, a pattern could say something about the franchisor.

If your “mystery shopper” experiences make you wonder about the franchisor’s practices, ask the franchisees whether they’ve experienced pressure to take actions they aren’t proud of.

“Good Guy” Clauses

No matter whether it is your lease or your franchise agreement, you never want to allow a “good guy” clause to pierce your corporate veil and leave you personally liable for your business. It’s common practice in New York City, where the Hagan Brothers had their UPS Store franchise, to ensure a lease with a “good guy” clause that says that the tenant will pay rent even if their business fails. In part of the suit, the Hagan Brothers state that UPS has been trying to undercut them with landlords and assign new franchisees at a lower rent. Because of the “good guy” clause, the Hagan Brothers would have to subsidize the rest of the rent that the new UPS store owners aren’t paying—possibly forever.

Franchises can use the argument of “you’re a good guy and we’re good guys” to get you to sign documents with clauses like these, but be very wary of them and always seek legal opinion before signing documents. No matter how good all the guys involved might be, getting legal advice protects both sides of the deal.

We’ll be watching this case with interest, but it’s impossible to predict the outcome at this point. What we can say with certainty is that it’s essential when you sign up with a franchise to choose one that shares your values.

Pending Request