System4 Franchise

Financing Details

System4 offers financing only for a portion of the Initial Franchise Fee, providing up to 20% of the fee for qualified franchisees. These loans have a term of 1 to 3 years with an interest rate of 12% per year. The financing arrangement requires a security interest in all of the franchisee's business assets and a personal guarantee from the owners. If payments are more than 10 days late, a late fee equal to 5% of the overdue amount is charged, and the interest rate on the entire unpaid balance increases to 18% per year. Defaulting on the loan can lead to termination of the franchise, with the franchisee liable for the entire unpaid amount plus System4's attorneys' fees and court costs. System4 does not offer any other type of direct or indirect financing and does not guarantee third-party financing.

Litigation Summary

System4 has been involved in several legal disputes, all of which concluded by 2017 and are therefore not recent. The most detailed case, "Edson Teles Machado, et al v. System4, LLC, et al," was a purported class action alleging System4 and a Master Franchisee breached franchise agreements by failing to provide business and defrauded plaintiffs, misclassifying them as independent contractors. This case proceeded through trial and appeals, with the Massachusetts Supreme Judicial Court ultimately affirming an arbitration clause, requiring plaintiffs to pursue claims individually. No such arbitrations were filed against System4. Another significant case, "Luis Ribeiro v. System4, LLC," was an arbitration proceeding in 2015 where the claimant alleged misclassification as an independent contractor and wage violations. The arbitrator found System4 liable for misclassifying the claimant and awarded $78,558.77, which System4 paid after its motion to vacate the award was denied. Additionally, System4 was involved in nine other similar arbitration proceedings (Marilinda Cruz, Amarido Luis Arujo, Helio De Oliveira and Rosani De Oliveira, Petter Bruno De Souza, Poliane Santos and Stenio Ferreira, Glaucia Santos and Luiz Carlos Santos, George Lopez, Juan Carlos Martinez, Iracema Tramontim), all initiated around March 2016 with comparable allegations, and all were closed by the American Arbitration Association on September 14, 2017.

Renewal Conditions

System4 franchisees who wish to renew their agreement must provide written notice of renewal between 180 days and 1 year before the current agreement expires. They are required to sign the then-current Franchise Agreement, which may have terms that differ significantly from their existing agreement, sign a legal release, pay a renewal fee of $10,000, and ensure they are in full compliance with the current Franchise Agreement.

Staffing Notes

System4 franchisees primarily operate by utilizing independent contractors to perform authorized services. The employees hired by franchisees are typically direct administrative staff, account managers, sales representatives, or operations managers rather than the actual service providers. Each franchise operation must be supervised by a designated manager who has successfully completed System4's training course; this manager does not necessarily need to be an owner of the franchise. Franchisees are responsible for covering the travel, living expenses, and salaries of any personnel attending initial or refresher training programs.