Subway Sandwich Franchisees Sue Chain on Ad Funds

Worldwide franchisees of Subway sandwich shops filed suit against the chain's founder Fred DeLuca and the franchiser Doctor's Associates Inc. Monday, claiming that terms of a new franchise agreement disregard existing commitments concerning marketing spending.

The lawsuit was filed in Connecticut Superior Court in Ansonia-New Haven by the Subway Franchisee Advertising Fund Trust (SFAFT), which was set up in 1990 to oversee and control how advertising contributions from franchisees are spent.

The trust, which says it is acting on behalf of 10,000 franchisees worldwide, claims that DeLuca's new franchise agreement, introduced on April 1, would allow him and the franchiser to redirect contributions away from the fund and into a separate entity whenever they choose.

That directly conflicts with the 1990 trust agreement that set up the fund, according to the franchisees.

"This changes the guaranteed protection that franchisees currently have," said Tom Seddon, chief executive of SFAFT. He said franchisees contribute 3.5 percent to 4.5 percent of their revenue into the fund, which is governed by an elected board of franchisees that ultimately controls how the money is spent.

Seddon said the fund has worked very well since 1990 and has helped drive the success of the privately-held chain, which has 25,000 restaurants in 83 countries.

"We just don't see what the sense is in changing something that works so well," Seddon said. He also said the franchiser has stated that it has no intention of actually diverting any contributions away from the fund.

A Subway spokesman had no comment beyond saying that the company was "still hopeful that we can come to an amicable solution."