Franchisees sue Bojangles over marketing

The chicken chain’s franchisee association says the company stopped providing information on how it uses their marketing dollars and a second “secret” account.
Bojangles franchisees say the company refused to cooperate on a marketing audit. | Photo: Shutterstock.

Bojangles franchisees are suing the brand over its marketing fund, arguing that the company stopped providing regular information on how those dollars get used.

The Bojangles of America Franchisee Association (BFA), a group representing most of the chain’s operators, is also accusing the Charlotte-based franchise of keeping a secret “accrual account” for disposing of discontinued products. That account is not disclosed in franchise documents and operators only discovered it four years after its creation, the BFA says in its complaint.

The lawsuit, filed in a North Carolina Superior Court, says that the company promised in 2022 to allow the BFA to audit the marketing fund and the accrual account, at the association’s expense. The group began to conduct the audit and then Bojangles “unilaterally ended the audit” and has stopped providing any information about the funds.

“They promised to allow the BFA to audit the marketing fund and the accrual account,” Robert Zarco, an attorney with Miami-based Zarco Einhorn Salkowski, said in an interview. “They provided us with scant information and not everything we needed to provide an accurate audit.”

Bojangles wouldn’t comment on the issues in the lawsuit, citing pending litigation. The company did provide a statement:

“While we can’t comment on pending litigation, Bojangles respects and values all our franchisees,” the company said. “We will remain committed to working shoulder to shoulder with them to find solutions and continue to help the brand grow and succeed.”

Franchisees of restaurant chains and other franchises typically contribute a portion of their revenues into a fund for marketing. Bojangles franchisees pay 1% of their monthly revenues into this fund.

Such funds can become sources of tension when franchisees believe the money is being misused, or is being used for the franchisor’s purposes, such as selling franchises or for general corporate purposes.

The BFA represents nearly four-fifths of Bojangles’ 500 franchise locations. The association is an independent group formed in 1984, and this is its first lawsuit against the company.

The lawsuit notes that the Bojangles franchise disclosure document, or FDD, requires the marketing fund contribution and restricts what the company can do with the funds—limiting them to marketing purposes.

But it says that franchisees also are required to make additional contributions to an accrual fund as part of the company’s agreement with the distributor McLane. Those contributions are not disclosed in the FDD, the lawsuit says. That fund dates back to 2015 and is to be used for the disposal of “discontinued product or dead stock.”

The lawsuit says that franchisees are routinely charged extra when they order certain cases of product but says the company does not disclose which cases of product receive the extra charges.

The BFA says it only learned of the accrual account in 2019, four years after it was created.

The lawsuit says that the company provided franchisees with a regular accounting of the marketing fund without requiring operators make a formal request. The accounting would show where the money was being spent.

That stopped in 2020, a year after the company was taken private by the investment firm Durational Capital Management. Bojangles also refused to provide any accounting on the accrual fund.

Bojangles eventually provided a “basic, high-level summary” of the accounting without any detailed information. For instance, one recent report says only that the fund spent $7.2 million for production expenses and $760,000 for administrative expenses.

“The sudden lack of transparency raised significant concerns regarding whether the marketing fund and the accrual account are being properly administered … or are being used as a mere ‘slush fund for the benefit of” Bojangles, the lawsuit says.

Franchisees argued in a 2021 letter to the company that the marketing and the accrual account appear to be “intermingled.”

In 2022, the company promised to cooperate with an audit at a meeting with the association’s board of directors and that year began to cooperate with the process. But by January of last year, it had not provided several pieces of information requested for the audit.

Franchisees argued that the documents and information the company had provided “raised a number of significant and concerning questions” regarding whether the two accounts were being properly administered.

In February 2023, Bojangles terminated the audit, saying that it had “substantially fulfilled” its commitment, and refused to provide any more documents.

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