A McDonald's franchisee invests, on average, several hundred thousand dollars to open and then run a restaurant. Yet nothing in the standard American agreement guarantees that another restaurant under the same brand — owned by the group or by another franchisee — will not be approved a few hundred metres from theirs, capturing part of their customers. This is what the franchise industry calls encroachment: one outlet intruding on the catchment area of another.
What the franchisees' association is demanding
This is one of the central demands put forward by the National Owners Association (NOA), the organisation representing more than a thousand McDonald's franchisees in the United States. In its “Franchisee Bill of Rights”, it calls for meaningful protection against encroachment or cannibalisation by other restaurants — corporate or franchised — that would cause material harm to existing restaurants without valid reason or fair compensation.
To pursue this issue the NOA engaged the lawyer Robert Zarco, who specialises in franchise litigation, and called on its members to write to the US Federal Trade Commission (FTC), which has opened a public consultation on the business practices of franchise networks.
A dispute broader than a single point of the agreement
The dispute goes beyond the territorial question alone. The American trade press has for several years documented a growing tension between McDonald's Corporation and its franchisees: tighter operating standards, more frequent inspections, new approval rules making it harder for a long-standing operator to have their agreement renewed at the end of its term — even with good operating results.
What French law says, by way of comparison
Under French law, the question arises in different terms. The franchise agreement carries, unless otherwise stipulated, no guarantee of territorial exclusivity — but case law strictly governs the conditions under which a franchisor may end the relationship with a franchisee, and imposes on it a duty of good faith in the performance of the agreement. This is different ground from North American “encroachment”, but it raises the same underlying question: how far does the network's power extend over the economic environment of an operator who has invested on the strength of an agreement?