Bojangles' franchisees claim the company has refused to cooperate with marketing audits. | Photo: Shutterstock.
Bojangles franchisees are suing the brand over marketing funds, alleging the company has stopped providing regular information about how the funds are used.
The Bojangles of America Franchise Association (BFA), the organization that represents most of the chain's operators, also said the Charlotte-based franchise has secret “accrual accounts” for disposing of discontinued products. is accused of holding. BFA said in its complaint that the account was not disclosed in franchise documents and that the operator only discovered it four years after it was opened.
The lawsuit, filed in North Carolina Superior Court, says the company promised to allow BFA to audit its marketing funds and accruals in 2022 at the association's expense. The group began conducting an audit, but then Bojangles “unilaterally terminated the audit” and stopped providing information about the fund.
“They promised that BFA would be able to audit the marketing funds and accrual accounts,” Robert Zarco, a Miami-based attorney with Zarco Einhorn Salkowski, said in an interview. “The information they provided us was sparse and not everything we needed to provide an accurate audit.”
Bojangles declined to comment on the issues in the lawsuit, citing the ongoing litigation. The company released the following statement:
“While we cannot comment on pending litigation, Bojangles respects and values all of our franchisees,” the company said. “We remain committed to working side by side with them to find solutions and continue to help their brands grow and succeed.”
Franchisees of restaurant chains and other franchises typically donate a portion of their profits to a marketing fund. A Bojangles franchisee pays 1% of his monthly income into this fund.
Such funds can be a source of tension if the franchisor believes that the funds are being misused or used for franchisor purposes, such as franchise sales or general corporate purposes. there is.
BFA accounts for nearly four-fifths of Bojangles' 500 franchised stores. The association is an independent organization established in 1984, and this is the first lawsuit against the company.
The complaint points out that Bojangles' Franchise Disclosure Document (FDD) requires marketing funds and that the company can only do with those funds for marketing purposes.
However, as part of the company's agreement with distributor McLean, franchisees are also required to make additional contributions to the accrual fund. According to the complaint, these contributions were not disclosed in FDD. The funds date back to 2015 and are to be used to dispose of “discontinued products or defective inventory.”
Franchisees are routinely charged additional fees when ordering certain items, but the company does not disclose which items receive additional fees, according to the complaint.
BFA said it learned of the accrual account's existence in 2019, four years after its creation.
The company provided franchisees with regular accounting of marketing funds without requiring operators to formally request them, according to the complaint. Accounting shows where the money is spent.
That stopped in 2020, a year after the company was taken private by investment firm Dural Capital Management. Bojangles also declined to provide any explanation regarding the accrual funds.
Bojangles' ultimately provided a “basic summary” of its accounting procedures without any detailed information. For example, one recent report simply states that the foundation spent $7.2 million on production costs and that he spent $760,000 on administrative costs.
“The sudden lack of transparency has raised serious concerns about whether marketing funds and accruals are being properly managed or simply being used as a 'slush fund for Bojangles.' ” the complaint states.
In a 2021 letter to the company, franchisees argued that marketing and accrual accounts appear to be “mixed.”
The company pledged to cooperate with the audit at the association's board meeting in 2022, and began cooperating with the audit in the same year. However, it had not provided some information requested by the audit by January last year.
The franchisees claimed that the documents and information provided by the company “raised a number of serious and concerning questions” about whether the two accounts were properly managed.
In February 2023, Bojangles closed the audit saying it had “substantially fulfilled” its commitments and declined to provide further documentation.
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