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Revoked franchise due to protest raises contract questions

| Mar 18, 2020 | Franchise Law |

A pizza franchisee has lost their chain franchise at the worst time, amid the coronavirus crisis.

Now is a good moment to revisit the contracts affecting your business relationships. Those relationships are bound to be stressed in multiple ways, and your contracts may at least serve as one stable ground on which to stand.

Disparaging sign catches the attention of franchisor

The Governor of Illinois announced from the state capitol that he was calling a mandatory shutdown of dine-in restaurants statewide until at least March 30.

The owner of a pizza restaurant franchise, obviously dissatisfied with the decision, posted a large hand-written sign in the restaurant’s window, insulting the governor using a mild obscenity.

The restaurant chain revoked the franchise, according to media reports. The now-former franchisee is located in Taylorville, about 25 miles southeast of Springfield, the Illinois capital.

A relatively new entry into the franchise pizza business, the company’s statement emphasized that “we fully stand with the Illinois Restaurant Association and the Governor in this decision” and described the former franchisee’s sign as “juvenile.”

Buckle up for a bumpy ride

Without commenting on the specifics of this case, the disruptions brought on by COVID-19 are likely to bring on multiple and no-doubt unexpected episodes in the broader business of franchising as well as in the personal lives of franchisors, franchisees, their employees and customers. Whatever happens, it is likely to be stressful for some time to come.

Revocation of franchise is not usually so simple

In general, franchisors face legal hurdles in revoking a franchise for reasons that do not comfortably correspond to reasons described in the franchise contract.

However, depending on the breach, most revocations require the franchisor to follow a clearly described set of procedures.

Ordinarily, contracts require a revocation notice that describes a good reason, gives a certain amount of advance notice and offers a schedule during which the franchisee has an opportunity to fix or “cure” the problem.

Some breaches of contract are more serious than others

Contracts usually list or describe the kinds of breaches that allow a franchisor to revoke a franchise.

Typical reasons include issues such as failing to pay royalties, suspension of local licenses, breaking leases and the like. The franchisee must also follow franchisor branding requirements for the building, employee uniforms and, notably, signage.

But there are also breaches so serious and clearly beyond the bounds of business contracts that a court will typically uphold a decision by the franchisor to immediately revoke a franchise without notice.

These may include serious breaches of safety or public health, criminal behavior by the franchisee or allowed by the franchisee on the premises, or anything that tarnishes the reputation of the brand.

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