Inside the Burrito with a Seasoned Franchise Attorney

Narrator:

From LawHub, this is I Am The Law, a podcast where we talk with lawyers about their jobs to shed light on how they fit into the larger legal ecosystem. In this episode, Derek Tokaz interviews of franchise lawyer who's in-house at popular burrito fast-casual chain, Qdoba, although he has since switched jobs.

Derek Tokaz:

We're joined today by Ryan Evans, a 2009 graduate from Boston University School of Law, where he also received his MBA. He is currently Assistant General Counsel at Qdoba restaurant Corporation, a popular fast-casual chain that serves Mexican style food. So Ryan, you didn't start at Qdoba right away but you also didn't follow the traditional law firm to corporate to in-house route either. Hamra Enterprises, your first job out of law school, based in Boston and franchises Wendy's, Panera, Holiday Inn Express, and others. Can you explain just to get things started what a franchise is?

Ryan Evans:

A franchise really is just a proven model of a way of doing things that a company then lets other people use for a small fee. So, for example, with Qdoba, we have a way of obviously making food but also our brand, the colors that you see in the restaurant, the way we do things. We've sort of perfected, if you will, that system. And then what we do is we go to small business owners, regular mama pops up to larger companies, and we say, hey, look, we've got this proven model, a way of doing things that has worked, and we're gonna let you take our playbook and copy it and use it elsewhere.

Derek Tokaz:

Can you explain what Hamra Enterprises was and how they were operating?

Ryan Evans:

Hamra Enterprises was a franchisee that started out with the Wendy's group, and then branched out into Panera Bread, and then branch out a bit more and did some other concepts as well. Essentially, they were a company, a franchisee company, and essentially, they just ran restaurants and hotels, according to the franchise model.

Derek Tokaz:

Can you describe a bit of what you did at Hamra?

Ryan Evans:

Because it was a relatively small company -- now from a franchisee perspective, it was pretty big. But we had only two attorneys in house. Many franchisee groups don't have any attorneys in house because they're not big enough. So we were sort of on the larger end in there, my responsibilities there sort of covered the gamut of any small to midsize business. I would deal with with a lot of lease issues with our locations. We also started getting into building and developing some of our own sites. So there's a lot of entitlement and development issues and working with the cities on different things. Also did a lot with franchise issues, working with the franchise documents and with the franchisor. Wendy's and Panera were the two big ones in that case. Also worked a lot with HR issues, contracts -- it was a good place to start, because it's a very general background. I got to have my hand in a lot of different different things and see what I liked and what I didn't care for so much.

Derek Tokaz:

They were operating in, I think it was seven or eight states at the time.

Ryan Evans:

Yes. And we had four or five different concepts. And so they were fairly large, large company at that point running multiple franchise entities.

Derek Tokaz:

Okay, I had never heard before that this is a way of doing franchises. I had always just had that Mom and Pop model in my head and hadn't considered that you would have companies running multiple things like this.

Ryan Evans:

Yeah, it can get it can get pretty large. Depending on the concept, McDonald's will have some groups that are larger, with Qdoba, you know, some of our franchisees will own upwards of 50 locations, and others will have one or two.

Derek Tokaz:

So you're at Hamra for about three years and then moved to California and started your own firms, right?

Ryan Evans:

I grew up in Southern California. The plan was always just end up back in the in the west at some point. And that just felt like a good time to do it. I always wanted to get back into in house. I prefer that environment and the the work-life balance there, but but in the interim, I did a couple of small solo projects.

Derek Tokaz:

The solo work was mostly just a stop gap before being able to get another in house position?

Ryan Evans:

Yeah, I moved back to California in late 2012, which wasn't exactly the best environment for trying to secure a new job, especially when you've been across the country for a number of years. So that was sort of just a way to bridge the gap until I found something that was kind of in house and something I wanted to do more on a long term basis.

Derek Tokaz:

So how did you get to that next in house position?

Ryan Evans:

I am a firm believer in networking and where that gets you. That being said, I have never found a job via networking. I've always got a traditional route of of just applications. So I had been kind of keep my ears open on things and I heard that the Jack in the Box based in San Diego was looking for a franchise attorney. I applied I there and what I found out afterwards is that they were looking for a franchise attorney who had experience but not too much experience. And the way I took that was someone that could afford, hadn't been out for too long. And I was the only one who had some significant franchise law experience, but yet hadn't had been practicing for so long that I commanded a salary that was too much for them. Again, I'm a firm believer in networking. I'm also a firm believer that you make your own luck, but a lot of times you you need luck as well. And this is a situation where because I had been lucky and gotten the job with Hamra straight out of law school, I was fortunate enough to have almost three years of franchise experience under my belt already. Even though I hadn't not been practicing that along.

Derek Tokaz:

With Jack in the Box, you're now on the other side of the franchise transaction.

Ryan Evans:

Correct.

Derek Tokaz:

You're no longer the franchisee, you're the franchisor. Can you talk a bit about how that changes the nature of the work you're doing?

Ryan Evans:

In one sense, it changed because I was drafting all of the documents that I had been reviewing on the other end as a franchisee attorney. And one of those is a pretty thick document called the Franchise Disclosure Document. As a quick primer, every company that wants to franchise their system or sort of sell their system to franchisees has to put together this big document called a Franchise Disclosure Document or FTD, as people call it. It's like a prospectus. If you invest in companies, it basically says everything that a potential franchisee can expect to pay to do everything else as part of the franchise process. And so it's designed for franchisors to give this information to franchisees. So the franchisees can read it and understand what's expected of them before they go ahead and make an investment. It's a way to protect the franchisees from spending their money and then not giving what they thought or kind of falling into a business trap. And so on the franchisee side, I had been reviewing those documents that have come from Panera and from Wendy's. And then on the other side, I was the one preparing that document. So that was quite a change to see it from the other side. On the other end of it. However, I think it was really good that I had that franchisee experience because at Jack in the Box on the franchisor side, I had that lens of knowing what it was like on the other side. And for lack of a better term, usually franchisors are sort of the big companies and the franchisees are the little guys. And so it was nice to to have the perspective of the little guy. At Jack in the Box, and this is the same as Qdoba, you can imagine where the relationship might become adversarial at times, when the franchisor wants to do something, the franchisee thinks a different way just because of differences in perspective. And we really took the approach that we're business partners, and so we want to work together. And really, if the franchisees do well, then the franchisors do well and vice versa. And so it was great to have that perspective of having been on the other side as I was engaging in negotiations and talks and discussing strategy and that sort of thing.

Derek Tokaz:

So if we fast forward to 2018, it had been about four and a half years working with Jack in the Box. And Jack in the Box at the time also owned Qdoba. What happened then so that now you're just at Qdoba.

Ryan Evans:

I'll back up a little bit, Jack in the Box, and most people listening to this podcast probably recognize the name although it's it's more familiar in sort of the western part of the country and the south. But it's a fast food hamburger chain. They acquired Qdoba in the early 2000s and Qdoba started in in Denver, which coincidentally enough was also the birthplace of Chipotle, who is Qdoba's main competitor. So both these concepts were kind of in started in Denver, Jack in the Box acquired Qdoba. And for the most part left it alone for 15 or so years. At some point Jack in the Box decided, hey, it's probably better not to have two separate legal departments, accounting departments, and marking departments. And so they consolidated and moved Qdoba down to San Diego, where Jack and Box is headquartered. My entire time at Jack in the Box, I was actually working both on Jack in the Box matters and Qdoba matters. So I had familiarity. And then when Qdoba moved down to San Diego, I got a chance to sort of interact more on a personal level with with people that I had previously dealt with on the phone or via email. And it was it was great. But Qdoba quickly became a sort of an acquisition target. And Jack in the Box decided to sell Qdoba off in 2018. And they were sold to a private equity company. And so as part of that transition, there's a lot of people that kind of work on both brands that obviously, you know once you move from two companies down to one, you don't need quite as many people. And Qdoba came to me and and recruited me and asked if I want to come over and, and work for them. And it was a situation that was it was a good opportunity and I have been working there since then.

Derek Tokaz:

So you said Hamra, it was just you and one other attorney. So what's the situation like with Qdoba, the size of the office, the legal department there?

Ryan Evans:

It's interesting, I've sort of come full circle. So at Hamra, we were a group of two and we did a lot of different things. And we were expected to manage the large workflow. At Jack in the Box, we were seven attorneys, when I was there, it was a much larger public company. And then if, for those who don't know much about private equity, more or less, if you've seen these these shows on on cable about flipping homes, private equity companies, for lack of a better term sort of flip businesses. So they'll acquire business that they think has some potential value that hasn't been met. And they will take it over and then try to improve upon it and drive the value up. And then at some point, usually they they sell it off. That's the case with us. And so as part of that strategy, they try to keep costs down. So we're back to just two attorneys at Qdoba, which is both times a little bit overwhelming, but at the same time very, very fulfilling from a professional standpoint because there's so much work to do, and so much I get to kind of put my hands into, because there are only two attorneys.

Derek Tokaz:

So to put that in context: about how big is Qdoba how many locations are there nationally?

Ryan Evans:

So we have approximately 750 locations throughout the United States and Canada. And approximately 50% of those are corporate locations that Qdoba owns and runs ourselves and approximately 50% of those are franchise locations,

Derek Tokaz:

I would assume a lot of the work that you're doing is not necessarily going to be that franchise specific work. So what's different between the work you're doing with the corporate locations, and what you would do with the franchisees?

Ryan Evans:

So the franchisees are their own business, they run the Qdoba system. And they use our name and our logo and our recipes and that sort of thing. But they are their own standalone business. They are required to sort of do things on their own for the most part. And so with corporate locations, we deal a lot more with issues, for example, involving employees and HR, leases, for example, that we lease for our own corporate locations. For a franchised location, we don't get involved at all, and they're their employees, where they pay them. Any issues that might come up, we don't get involved for the most part in the leases that they negotiate with their landlords or the contracts that they sign with vendors. So it's really corporate locations, we get a lot more into the nuts and bolts in the day to day stuff. With franchisees, it's really more the initial franchise agreements, the document that kind of the kind of contract between us and from that point on it's a lot more just monitoring things.

Derek Tokaz:

So I know a big issue with the franchisee relationships is maintaining consistency. How involved are you with that?

Ryan Evans:

We've set certain standards and we require franchisees to meet those standards, but we don't really regulate how they meet those standards. For example, we might require that burritos are of a certain size and contain certain ingredients and that sort of thing, but we don't require how many employees to make that burrito. That's more of the process, we focus more on sort of the end goal and not how franchisees get there. We have what's called a franchise business consultant, which is a Qdoba employee that travels around to different locations and just sort of checks in and provides advice where needed. They sort of monitor things. Where I become involved, on the franchise side, is if a franchisee is not meeting standards. And then it's up to me along with a group of other business folks here to kind of determine, okay, why are they not meeting it? What do we want to do? Obviously, if a franchisee is not meeting certain standards for a period of time, then they can be in default of their agreement, which as last case scenario means we can terminate the relationship. So I usually get involved at the end when things have been going on for a little bit. And it's time to kind of evaluate what what actions we want to take. But we do have other people that monitor the relationship along the way.

Derek Tokaz:

So it sounds like your work involves a lot of paperwork and contracts and other legal these documents. And can you talk a bit about how much of a role you have in drafting those versus documents that companies have had when you came in and you're able to recycle documents or are able to rely a lot on boilerplate, versus having to craft a lot of new legal documents yourself?

Ryan Evans:

So I'm a big fan of efficiency and so I don't recreate the wheel when I don't need to. When I came to Jack, there were some, you know, existing documents that they used for franchisees for leases and some other stuff like that. So I prefer to kind of come and then tweak as needed. And I will also set up with myself internally along with business partners, a periodic review of things so that we can check in and say, okay, what's working with this document? What's come up in the past year, for example, that we need to update and add in? I usually start out with some form of template and then tweak it from there. So I usually want to pull something either from a source or from the internet and use that with modification of some sort.

Derek Tokaz:

You had mentioned the Franchise Disclosure Document being a pretty, pretty significant document for you. Is that something that you would have to have with every new franchisee? Or is that just when the company wants to begin franchising?

Ryan Evans:

When a company begins franchising, they need the FTD every year. And then that's provided to any potential franchisee who's expressed some interest in joining that franchise. The FTD itself, it's a document that's regulated by the Federal Trade Commission. And so the format of it is, is pretty uniform. And so my role in doing that is one of determining, along with our outside counsel, you know what information that we need to provide? And the goal there is always to provide enough information that would be material to a franchisee when they're deciding whether to join on with us. And so our approach is that we always want to provide enough information that a franchisee is eyes wide open. For us, this is the first step of the franchise relationship. So it doesn't do anyone any good if we don't disclose something, the franchisee feels that we don't disclose something that's, that's important. And then we start off on the wrong foot. So we always try to look every year at what information we think would be relevant to a franchisee and make sure that we provide that. We also determine the updates that need to take place. For example, our restaurant challenges change every year. We've seen a general trend of growth over the last few years, so obviousl, we need to update the number of our restaurants and kind of the makeup of our management team and that sort of thing. It's a fairly involved process. It takes up most of my time between September and January every year, usually runs about 500 pages or so.

Derek Tokaz:

Okay, yeah. 500 pages -- that's a Game of Thrones novel of work to put together.

Ryan Evans:

Yes. And to be fair, some of that is financials and similar stuff that I don't I don't prepare, but it's it's a pretty lengthy document.

Derek Tokaz:

You had mentioned that about half the Qdoba locations are corporate owned, which I would imagine means you have a lot of work to do with real estate.

Ryan Evans:

Yes, yes. I handle all the real estate for the company, all the legal transactions. That means I'm involved with drafting and negotiating leases, any amendments that come up, as well as any issues we have. For example, some some ancillary agreements with some locations with with signage we might want to get on or some other things. So, yes, I'm involved with all that.:love real estate, I think that that's probably my favorite area of law. For me, it's a pleasurable endeavor, but it definitely gets a gets to be a lot of times.

Derek Tokaz:

if you're dealing with more than 300 locations, and I assume most of those would have different landlords, how do you keep track of those many individual local issues?

Ryan Evans:

We use technology. So we have a database that we use that will track the locations and some lease-specific documents there. We also utilize outside counsel where we need to identify local issues and then help us out on on there. And then a lot of it is is simply the the general approach works for most locations. It does require some tweaks and some different areas. Generally speaking, we can do the same thing in a location just and just makes some minor revisions where needed.

Derek Tokaz:

So moving from those routine issues that you're dealing with, how often do you have to deal with a crisis or a new issue that's not something that you're expecting? Or does it come up very often? One thing that occasionally happens to restaurants is a food recall issue or, you know, occasionally we have an E. coli outbreak somewhere. How involved are you in the response to those issues?

Ryan Evans:

We have a response committee for different types of issues. We have a pretty robust Food Safety Department as well, which we sort of inherited from Jack in the Box. Jack had a pretty severe food safety crisis in the early 90s. That was was ingrained in their culture. And so they took food safety very seriously and that's was part of Qdoba's culture when we're part of Jack in the Box and transitioned over. So there are things that come up. Luckily, we haven't had any direct issues on the food safety front, but there are product recalls. A lot of listeners will probably be interested to hear about how different things in different parts of the world can can affect prices and availability of food. For example, we had an issue, I believe it was in 2019, where there were a farmers strike in one area of Mexico. And that's where we sourced a lot of our avocados. And so it affected prices not only for us, but for a lot of our competitors as well because a couple of farmers in Mexico decided to strike and it had a ripple effect. So we have a team that kind of addresses issues as they come up. And that involves food safety and operations and supply chain and legal as well as our CEO,in many cases, and so we kind of take those as they come. Those are relatively few and far between. And for the most part, although they're unexpected, they're along the normal lines of kind of what we've seen before. But every once in a while you have something for example, the COVID-19 crisis, you know, that's something that that was pretty much unforeseen and unprecedented in the restaurant industry. And so a lot of restaurants had been hit hard. And we've had to quickly adapt to having many of our locations either shut down or restricted in terms of how and where we can serve our customers. And so that's been a real interesting challenge to tackle. I'm happy to say that I'm proud of kind of how we've have nimble we've been. Our CEO often talks about how we are a large multi-unit startup. And so our mindset and our culture is one of innovation, agility, and trying to tackle problems quickly. Yeah, I've been impressed with how we've dealt with it. And it's a collective effort that involves everyone. You know, we've we've had a lot of conversations and late nights and weekends, in collaboration talking about how do we get restaurants back up and running? How do we address getting people back to work? You know, how do we evaluate the changing landscape and what customers want moving forward? This current time has definitely been one of the biggest challenges that we face and I face in my career, but But it's been very, very educational.

Derek Tokaz:

So how involved have you been with complying with the multitude of local and state ordinances that we've had now in response to COVID-19? With more than 300 corporate locations, just huge number of different sets of rules going on for everybody.

Ryan Evans:

Yeah, it's been it's been very, very complicated. And tough to kind of stay abreast, not only are there different state regulations, but they're different city or county ordinances in some cases. Here in California, for example, there's some ordinances, especially early on in the crisis, where Las Angeles County would have one set of circumstances amd San Diego county would have a clean, separate set. And so we'd have to sort of adjust. I've been pretty involved in that, especially from the real estate side, and kind of evaluating, you know, if, if we've been shut down into location or restricted, how does that affect our lease and our rights? And are there any provisions in the lease, for example, that might trigger different rent obligations, or, you know, things that we can try to do to make up for being closed? Many of our markets that we're in, some of those markets will be what we call mixed markets. So we'll have both company locations and franchise locations. And others are strictly company or strictly mixed. So you may have an example where we have a state where we only have franchisees there, so we're not dealing with the effects from a corporate side, but we're definitely monitoring them. And it's definitely been been a lot to try to take in. And we've relied a fair amount on outside counsel to try to help us out through this because there's just simply not the bandwidth internally for us to monitor every single little thing that's going on.

Derek Tokaz:

So when you have a national issue like this, would that be something where you would be working more with the franchisees?

Ryan Evans:

We think that we work with them pretty strongly anyway. In my experience, we have a pretty strong relationship with our franchisees and there's a franchisee council that they elect the franchisees to sort of serve as their advisory board. And we have a very good working relationship with them. But yeah, we've been very, very close contact with our franchisees. We see ourselves more as partners than anything. So we've had to navigate, I won't say together, but we've had -- Qdoba corporate, we've had to sort of make many of our decisions with our franchisees in mind and how it will affect them or how we can put them in the best position. For example, as part of the traditional franchise process, a franchisee will pay an initial fee to get the systems and then they pay a percentage, usually of their sales on an ongoing basis. And obviously, when COVID happened and sales were impacted, it was a situation where many franchisees were not getting as much in sales. And we made the decision to forbear from collecting any of those fees for a period of time to kind of weather this crisis.

Derek Tokaz:

Yeah, it looks like there's a lot of that going around. As awful as the situation is a lot of being able to use it as a learning opportunity to figure out how certain parts of companies or business relationships can work better.

Ryan Evans:

Yeah. As the case with many adversity situations, unfortunately, you know, we've seen already a lot of businesses have already declared bankruptcy. A lot of the smaller businesses probably won't come back from this, which is very sad. But there's those companies that do survive. I think will have much more stronger for having done so.