Reading the territory clause first
Whether encroachment is a legal problem depends heavily on the franchise agreement. Some agreements grant an exclusive or protected territory, while others give no territorial protection at all. Many agreements that do grant a territory reserve rights for the franchisor, such as selling online, operating in airports or stadiums, or acquiring competing brands. When the contract expressly reserves a right, courts are generally reluctant to use the implied covenant of good faith to override it. A few states have franchise relationship statutes that address encroachment or related conduct; New York's franchise law focuses mainly on the sale and disclosure process rather than the ongoing relationship.
Measuring the effect on your unit
Encroachment claims depend on showing that the new location or channel actually took business from you. Keep sales data from before and after the change, customer counts, and any loyalty or app data you can access. Maps showing distances and trade areas help illustrate the overlap. Preserve the franchise agreement, the disclosure document you received, and any written statements about territory made during the sales process. Communications from the franchisor announcing new units or channels are also relevant. Keep paying royalties and complying with the agreement while the issue is evaluated, because a default on your side can change the dispute.
Approaches before and during a dispute
In a first conversation we read the territory and reserved-rights clauses together and look at the agreement's dispute resolution provisions, which often require mediation or arbitration in a particular location. We consider whether franchisee associations or other owners are facing the same issue, since collective negotiation sometimes produces better results than individual claims. If the franchisor is considering a new site near yours, some agreements give you a right of first refusal or a process for raising objections. We also discuss whether a claim for lost sales is realistic given the cost of pursuing it.
