A franchisee owner has submitted a lawsuit suit in Nevada court against sandwich chain Subway. The suit seen by the New York Post alleges that some of Subway’s business development agents–BDAs were given managerial powers that allowed them to exploit and victimize hundreds or thousands of franchisees using a 350 page rulebook with thousands of rules and costly fees.
The suit says that the BDAs had been given access to franchisees books which made it easy for them to target and victimize them. Indian Americans and/or Indian immigrants reportedly invested their entire savings in these franchisees in pursuit of the “American dream” but lost money as well as their sandwich shops.
According to the suit, Subway has a lower fees of $15,000 to open a new store when compared with roughly $45,000 which is charged as franchise startup fees by chains like McDonald’s and Burger King. This attracted less savvy operators with lower Maths and English skills, the suit says. The suit said that Subway expanded its chain rapidly and added many shops in the immediate vicinity of the same location which led to low sales, closures and other problems for franchisees.
According to The Post the rule book from Subway is approximately 350 pages long. Each page contains about 10 compliance points. There are more than 3,000 ways by which franchisees can break the rules and pay a heavy price. If they are found to be non compliant, they have to pay a higher royalty fee of 10.5 percent of gross sales.
One particular BDA Chirayu Patel brought a few franchisees close to bankruptcy as he enforced rules. He owned a few Subway restaurants and bought a few more at low rates after they were pushed to make distress sales.
Subway also had clauses in contracts that force franchisees into arbitration. In 2017, Subway initiated 702 arbitrations with its franchisees while Dunkin Donuts had two cases, McDonald’s had one and Pizza Hut, Burger King and Wendy’s had none.
Some actions are slowly being taken against aggressive tactics by some chains. In late September, Franchisee Advocacy Group, a group that is lobbying for franchise rights has requested the FTC to investigate what it terms as abusive practices at national chains including Subway and 7-11.
