Competitor Agreements

The franchise agreements referenced below are current as of March 2009. What jumps out is the near absence of such objectionable clauses in the competitor agreements.

Children's Orchard Incorporated's (COI) explanation is that they are simply being more open and forthcoming than the competitors and that the competitors could do much the same as COI if they so chose under the more general language in their franchise agreements. The Orchard Cooperative's legal counsel rejects this notion. As every experienced franchisor knows, the franchise agreement is the legally binding cornerstone of a franchisor-franchisee business relationship, laying out the rights and obligations of each party in considerable detail. If the competitors intended to subject their franchisees to the clauses that we Children's Orchard franchisees find so untenable, they would have included them.

As explained on the ExpertLaw website,

The parties to the contract have a mutual understanding of what the contract covers. For example, in a contract for the sale of a 'mustang,' the buyer thinks he will obtain a car and the seller believes he is contracting to sell a horse, there is no meeting of the minds and the contract will likely be held unenforceable. It is implicit within all contracts that the parties are acting in good faith. For example, if the seller of a 'mustang' knows that the buyer thinks he is purchasing a car, but secretly intends to sell the buyer a horse, the seller is not acting in good faith and the contract will not be enforceable.¹

What ExpertLaw fails to mention is that on rare occasion, contracts will include a waiver of the "Covenant of Good Faith and Fair Dealing" in order to be able to get away with selling the horse. The Children's Orchard Franchise Agreement does just that.

Comparison of Competitor Agreements

Provision	Children's Orchard	Kid to Kid	Once Upon a Child
Advertising Fund Size	1. The Franchisor may increase required ad fund contributions by franchisees from 1 to 3% of Gross Sales. These funds may be used at the Franchisor's sole discretion to promote the franchise. 2. Franchisees may be charged for the costs of producing and distributing promotional materials relating to national promotions, costs historically borne by the Ad Fund.	1. Advertising Fund contributions are fixed at 0.5% of Gross Sales 2. No such provision	1. Franchisee ad fund contributions are fixed at $1000. Note: That's equivalent to 0.5% for a store with $200,000 annual sales. 2. No such provision
Advertising Fund Accountability	1. Provides that the Franchisor is not bound to act as a fiduciary with respect to the management of the Ad Fund. 2. General summary of ad fund expenditures by category available on written request. Any audit of the ad fund is at the Franchisor's sole discretion.	1. No such provision 2. Franchisor "shall make the books and records of the ... [Ad] Fund available to you [the franchisee] upon reasonable request and during regular business hours...."	1. No such provision 2. Franchisor provides franchisee with an annual unaudited statement of Fund receipts and disbursements.
Mandated National Promotions at Franchisee Expense and Without Limit	Franchisees must "participate in and fully honor all coupons, discounts, price reductions, promotional offers, rebate programs, gift card and store credit programs,... and all other programs/promotions directed by us [the Franchisor]."	No such requirement	While the franchisee must participate in national promotions, the franchisee has "the right to advertise and sell its products at whatever prices the franchisee determines."
Unlimited Fees and Charges	Provisions allowing the imposition of fees and charges beyond customary royalties, advertising fees and transfer fees—many unlimited in amount. These include: 1. Consulting fees for advice (requested or not) on store renovations or other changes to meet Children's Orchard standards 2. Mandated refresher training charges 3. Fee for review of alternate suppliers put forth by franchisees 4. Website usage and access fees 5. Advertisement production charges 6. Admission fees for national and regional meetings 7. Fees for any auditing, customer satisfaction and quality control programs the Franchisor might devise 8. No such fee	Few additional fees, all limited by amount or formula. 1. No such fee 2. There are no charges for required training 3. No such fee 4. No such fee 5. No such fee 6. Franchisees are required to periodically deposit funds to cover travel and per diem costs for the national and regional meetings. 7. Franchisees may have to pay a fee to support an advisory association established by the franchisor 8. Franchisees must contribute to a fund to cover the costs of upgrading franchise computer systems	Few additional fees, all limited by amount or formula. 1. No such fee 2. Refresher training may be required but there is no charge 3. No such fee 4. No such fee 5. No such fee 6. No such fee 7. No such fee 8. No such fee
Franchisor Profiteering on Franchisee Supplies	Franchisee inability to procure comparable goods and services other than from or through the Franchisor even if the other goods are lower in price. The Franchisor's declared right to "profit from the sale of goods and services to the franchisee."	No such provisions	No such provisions
Renewal Rights	No renewal right. A franchisee out of favor with the Franchisor for whatever reason could simply be denied the right to renew, effectively forcing the franchisee out of the business in which they've long invested. As stated in the Franchise Agreement: "Refusal to Renew[:] ...if we [COI] determine not to renew the Agreement, we shall give you [the Franchisee] written notice.... Such notice shall specify the reasons for non-renewal and you shall have no recourse or appeal, as such decisions by us are final."	Right to renew in "reasonable exercise" of franchisor’s discretion and if franchisor conditions are met.	Right to renew if franchisor conditions are met.
Territorial Encroachment	Franchisor has the right to sell the same products as the franchisee close by, via mail order or over the internet under a different aegis "regardless of their impact on your [the franchisee's] shop."	May not locate another Kid to Kid Store within 3 miles of a franchisee's store. No mention of right to sell the same products under a different aegis regardless of proximity or impact on the franchisee's shop.	May do so "as long as such activities are not for the sole benefit of the franchisor but provide some benefit to Once Upon a Child franchisees in general...."
Post-Termination Fees	If the franchisee terminates or is terminated, the franchisee must pay the Franchisor "a lump sum payment equal to [the] royalty fees, Advertising Fees, and Ad Coop Fees... for the remaining term of the agreement." Note: Children's Orchard Incorporated (COI) claims that Kid to Kid and Once Upon a Child could pursue a lump sum payment for royalties and ad fees as COI itself has been doing even before making this franchisee post-termination obligation explicit in the current Agreement. While The Orchard Cooperative (TOC) is well aware of COI's success intimidating terminating franchisees into paying these projected royalties and fees, TOC has been advised that unless an Agreement makes reference to future fees, any damage claims would be considered speculative and not recoverable.	No such provision	No such provision
Basic Fairness	The franchisee must agree to waive the Implied Covenant of Good Faith and Fair Dealing, an implied condition commonly used to protect against the abusive exercise of contract clauses.	No such provision	No such provision
Inflated Royalties and Ad Fund Payments	Royalties are charged on franchisee promotional expenses (store credits, vouchers good toward future purchases, discounts and gifts) as well as on actual store revenues.	Royalties are charged on gross receipts less taxes, customer refunds and returns.	Royalties are charged on actual store revenues only: "cash, check, credit card, or trade… less customer refunds and returns."