The Little Gym has over 400 locations in over 30 countries.
Nearly three dozen franchisees who own more than 50 Little Gyms have filed legal action against Unleashed Brands, contending the parent company is imposing “damaging changes on the franchise businesses in violation of existing franchise agreements.”
Robert Einhorn, an attorney at Zarco Einhorn Salkowski, confirmed his law firm filed 35 separate arbitration cases in the last two weeks on behalf of Little Gym owners and said more are likely to come. Each of the cases filed with the American Arbitration Association accuse Unleashed Brands of forcing franchisees to migrate to a new computer system that includes a new centralized banking platform the owners claim holds up their revenue stream for up to 15 days.
“It is unacceptable for Unleased Brands to take my revenue and choose when to disperse it to me,” Adam Stone, who has been a franchisee with The Little Gym for 22 years and is one of the operators who filed for an arbitration case, said in a press release put out by The Little Gym Owners Association SFFA. “That is not the business I bought into, and it is a blatant overreach of our franchise agreements.”
Among their complaints, the Little Gym franchisees claim Unleashed Brands “has significantly reduced resources allocated for crucial aspects like curriculum support, operations assistance, technology advancements and marketing initiatives,” according to the SFFA, an association of Little Gym owners who filed arbitration cases. “This reduction in support has not only affected the efficiency of operations but has also burdened franchisees with additional responsibilities.”
Robert Einhorn, attorney at Zarco Einhorn Salkowski
“TLGI, under Unleashed Brands’ management, immediately sought to implement policies focused on controlling and increasing its own revenue stream without regard to the reasonable, commercial interests and profitability of the independently owned and operated franchised locations. Such policies threaten the Claimants’ franchise rights under their Franchise Agreements,” reads a sample claim provided by Einhorn.
The franchisees who filed the latest round of arbitration cases also accuse Unleashed Brands of pushing out a new point-of-sale system called Command Center that has “significant functionality issues” to the point of harming their businesses.
“Some early adopters discovered an issue with Command Center where customers set up on auto-pay were not actually being charged for the classes they attended,” said Bill Walenda, a Little Gym franchisee for more than 20 years who is president of The Little Gym association registered as SFFA.
Bill Walenda, president of The Little Gym association registered as SFFA.
“With tickets to Unleashed Brand’s help desk often going unanswered for one to two weeks, these owners are understandably extremely frustrated,” he said.
Stephen Polozola, chief legal officer for Unleashed Brands, acknowledged that when the new point-of-sale system was first rolled out last year, payments were being processed once a week. But he insisted payments have been processed four days a week since December.
“We performed an analysis of the amount of time it takes to deliver the money to franchisees, and from the time we receive it to the time it goes to the franchisees averages 1.4 days. There were even a number of instances where they received the funds the same day that we received them,” said Polozola, adding recent delays in processing are because of issues encountered with Microsoft, which apparently stopped supporting the new platform on which the old system was built.
“The Microsoft issue will be resolved soon. In the meantime, we cannot expose our customers or franchisees to that kind of security risk,” Polozola said.
Polozola said it was franchisees that initiated the changes Unleashed made to its point-of-sale system.
“We performed a survey of franchisees looking to identify what their biggest concerns were, and the No. 1 response was tech. They wanted to improve the point-of-sale system, so we went ahead and worked on improving an old, antiquated and flawed system,” he said.
“The reality is since we’ve implemented this new system, and for those who have migrated to it, there’s not a single franchisee who’s seen a reduction in revenue. In fact, systemwide, over the last 12 months, franchisee revenue across the board is up 15 percent and it’s up 49 percent over the last 24 months,” said Polozola. He noted an arbitrator last week denied two of the requests for injunctive relief and ruled Unleashed has the legal right to change its point-of-sale system.
In 2021, Unleashed Brands acquired The Little Gym International as part of Unleashed founder Michael Browning’s plan to diversify his company’s portfolio with youth-focused activity brands. The acquisition by Seidler Equity Partners from Unleashed’s former private equity backers came amid lawsuits from franchisees in two of the five brands Unleashed had purchased, and followed an earlier lawsuit by franchisees of its original Urban Air Adventure Park brand.
Franchise Times confirmed in February the turmoil at Unleashed had spread to five of the six franchises under its umbrella, including four that were purchased in the previous 20 months—Snapology, Premier Martial Arts, Class 101 and The Little Gym.
Last fall, a group of 54 franchisees filed a lawsuit seeking class-action status against Premier Martial Arts, its parent company and CEO Michael Browning, among others. The suit claims violations of RICO, or the Racketeer Influenced and Corrupt Organizations Act, fraudulent inducement and breach of contract. A second lawsuit filed in May claims the alleged fraudulent activity is continuing since Unleashed’s purchase of Premier Martial Arts in January 2022.
An arbitrator ruled in June that Unleashed’s termination of Tiffany and Ryan Cianci’s Little Gym’s franchise agreement was warranted, “based on the claimants’ repeated failures to pay royalty and advertising fees when due” and the franchisor’s non-compete provision was enforceable. The arbitrator did rule on Tiffany Cianci’s behalf on defamation, copyright infringement and trade secret violations. She has remained involved in franchise advocacy and in June told Franchise Times she will continue her fight “because franchisees don’t get to stand up for themselves and they don’t get to tell their stories. They get locked in secret arbitrations and they get threatened and non-disparaging agreements.”
Little Gym franchisees in the SFFA association claim that soon after the ownership change, “Unleashed began to implement changes that significantly—and negatively—impacted their businesses,” according to the release put out by the group. When owners expressed their concerns, members of the association said they encountered “aggressive responses and adverse actions from the company.”
Franchisees who are part of the legal battles against Unleashed Brands say they have united “in order to protect their small businesses and preserve the cultural legacy of The Little Gym.”
“Establishing a franchise owners’ association was a necessity in the face of this adversarial behavior,” Walenda said in a statement. “Unity empowers us to stand strong. We won’t be silenced or intimidated by corporate bullying. Our businesses and customers deserve better than this.”
A second Little Gym franchisee association, this one organized under the American Association of Franchisees and Dealers, also has members who are filing similar arbitration claims.