Over the past 30 years, there has been a tremendous number of lawsuits involving dealers for the major tool companies: Snap-on Tools, Mac Tools, Matco Tools and, to a lesser extent Cornwell tools. In the typical tool dealer arrangement, the dealer is the tool company’s customer and purchases tools for resale to the dealer’s customers who are typically mechanics or other that use high quality tools in their jobs. The dealer pays cash for the tools and generally sells them to the mechanic over time and with the mechanic making weekly payments.
Year ago, these tool companies offered “dealerships” but did not comply with applicable franchise disclosure rules. These violations led to a wave of litigation over such non-compliance. In addition, many of the companies began moving from geographic territories to “lists of calls,” which were the only addresses that the dealer could call on. This allowed the companies to sell more franchises (by simply assembling a list of addresses) and, since the dealers were the companies’ customer, to sell more tools. Every time a new franchise was sold, the companies earned a franchise fee and sold an initial start-up inventory of tools. Over time, and in order to sell more franchises and more tools. the companies continued to create franchises with fewer and fewer stops on the list of calls as well as stops that were spread of great distances. Company managers were often compensated in part by how many franchises and tools they could sell to the dealers — creating a conflict of interest between the company and dealer because it was often not in the dealer’s financial interest to purchase more tools. Company managers would use various questionable business practices to get dealers to buy more tools and to not return tools.
As a consequence, many dealers failed because they did not have enough customers to sell to and were pressured to buy too much inventory for their cash flow and/or finances to support. When a dealer failed, the company would often sell the same inadequate territory again to another, often unsuspecting, franchisee knowing that the number of stops could not support the dealer over the long term. Hundreds of dealers suffered hardships like losing their houses, filing bankruptcy, and getting divorced. And at least one dealer for a major company took his own life.
While some tool dealers earn good living, many do not. Given the high level of control the tool dealer companies exercise over the territory and the requirements place on the dealers such as weekly calls to every customer, the margin for error in operating a tool dealership is very small. Even slight setbacks can created devastating hardships over the long run.
If you are a tool dealer that is considering checking-in and terminating the dealership, you should contact Rob to develop a strategy and understand your rights. Often times, the companies will ask you to sign a release of claims that will bar any future lawsuits. Therefore, you must be extremely cautious with all agreements that a company may ask you to sign and make sure to get a legal opinion about the impact of signing such agreements.
Board Certified Franchise Lawyer Robert S. Boulter has represented tool dealer franchisees for twenty-five years on matters involving short territories/lists of calls, territory encroachment, fraud, breach of contract, check-in disputes, and franchise law violations. More, recently, courts have also been hearing cases that franchisees and/or other so-called “independent contractors” are legally employees and should be entitled to protections like minimum wages, rest breaks, expense reimbursement, and worker’s comp. etc. based on the level of control exercised over their work. If you have a dispute regarding your tool dealer franchise or questions about your legal rights, please call Robert toll free 1-855-FRAN-LAW for a free consultation.