During this Pandemic, many restaurants have needed to adapt to a new environment and expand their business practices. One type of expansion includes food delivery, and a quick and easy way to get involved in the food delivery business for restaurants is to register on a third party delivery platform such as Grubhub or Uber Eats.

Franchisees using these third-party delivery platforms are faced with a new problem. Namely, franchisees are paying royalties on money that the franchisees never receive. The reason for this is that money does not exchange hands directly between the customer and the restaurant.

Instead, there is an intermediary between the two parties, the delivery platform, that takes the money from the customer, then takes their own fee, and finally gives the rest to the franchisee.

However, the franchisee’s system still calculates what the customer paid, and based on that number; the franchisees are paying their royalties. For this reason, the franchisees may be paying more royalties than they are required.

What matters is the exact type of contractual language located in both the Franchise Disclosure Document and the Franchise Agreement.

Both agreements will have some definition of what is meant by gross revenue or sales. The definition can either be expansive or narrow, or it can also specifically entail these delivery platforms.

If the documents are vague and do not specifically mention how it treats revenue produced from these delivery platforms, then there is a good argument to be made that since the only money that is given to the franchisee is the money from the delivery platform, that is the only revenue source that royalties should be collected from.

Call International Franchises attorney Mario L. Herman to see how he can help you negotiate a lower royalty payment based on revenue produced by using these third-party delivery platforms.