Mark Pestronk
Q: For many years, our agency has had a corporate account that comprises a very large portion of our business, although we only have a small part of the client's worldwide travel volume. Recently, our client went out for bid on a global basis, and we learned that our franchise organization's own travel agency is going to try to win the account. They know that we handle this account, so I think that, if they won, they would be intentionally depriving us of our most valuable client. Is there anything we can do about it?
A: While it is undoubtedly the general policy of franchisers to avoid competition with their franchisees, exceptions are not uncommon, especially when large, multinational accounts are at stake. When the franchisers' agencies win the bids, franchisees have suffered very significant losses.
Nothing in any true franchise agreement that I have seen restricts the right of the franchiser's agency to go after the franchisee's clients. Furthermore, if you asked your franchiser to amend its franchise agreement to protect your agency against competition from the franchiser, the answer would undoubtedly be "no."
Franchisers are very reluctant to amend just one franchisee's agreement, as they believe that they will need to make the same changes for all franchisees. Some states' laws prohibit discriminatory franchise agreements, and other states require franchisers to file every amended agreement, which is then available for public inspection.
Although you could argue that the franchiser's actions would breach the implied covenant of good faith and fair dealing in every contract, you would probably lose if you brought such a claim in arbitration or litigation. First, the perpetrator is probably not the franchiser itself but rather an affiliate that the franchiser does not control. Second, since the franchiser's agency was already your competitor, you probably should have anticipated that it would be continuing to compete.
If you threaten to quit the program if the franchiser's agency wins the account, the franchiser would probably let you quit, as the account may be worth more to the franchiser's agency than you are worth to the franchiser. Worse, you could owe damages for early termination of the franchise agreement.
Your best bet is to try to persuade the franchiser's agency to subcontract the U.S. portion of the business to you. Although you would not make as much money as you did when you handled the account by yourself, a subcontract is certainly better than no contract.
Some large agencies operate so-called affiliate programs under which smaller agencies can use the large agency's name, supplier agreements and technology. These programs are not, strictly speaking, franchises because the large agencies do not exercise significant control or provide significant assistance in the operation of the business -- either of which is the hallmark of a franchise.
One such affiliate-program contract reads: "During the Term and subsequent terms of this Agreement and after its termination for any reason, for a period of two (2) years from termination, neither party shall solicit or service the clients of the other party."
Such a clause would not prohibit the large agency from responding to a solicitation, but it would probably refrain from doing so, since it could not handle the account if it won.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].