Franchise agreements define the relationship between franchisors and franchisees. When a franchisor decides to terminate this agreement, it can leave the franchisee in a precarious position. Legal recourse is likely available, depending on the details of the situation.
Legal remedies: What are my options after termination of franchise agreement?
When faced with termination, franchisees can explore the following legal avenues to reach a resolution:
- Mediation: This option focuses on attempts to resolve disputes amicably through direct negotiation with the franchisor using a neutral third party to facilitate a resolution. This method can be cost-effective and preserve the business relationship.
- Arbitration: Many franchise agreements include an arbitration clause, requiring the parties settle the disputes outside of court. Arbitration can be faster and more private than litigation. Franchisees should review their agreement to understand the arbitration process and its implications.
- Litigation: If negotiation and arbitration fail, franchisees may consider filing a lawsuit. Legal action can address wrongful termination, seeking damages or reinstatement.
A basic awareness of these options is helpful but reviewing an actual case can help provide a better understanding of how these disputes can unfold.
Legal recourse: How does this work in the real world?
In a recent example, a franchisee fought back after believing the franchisor wrongly terminated the franchise agreement. The dispute began when the franchisor switched to software that had a negative impact on day-to-day operations. The franchisee states the franchisor failed to address the issues. The franchisee sent an email and reached out within the company to express concern. Shortly afterwards, the franchisor terminated the agreement, stating the franchisee engaged “in conduct that reflect[ed] poorly on the brand.”
Upon termination, the franchisee has taken the matter to court and sought legal remedies citing various violations, including:
- Breach of contract
- Breach of implied covenant of good faith and fair dealing
- Violation of state franchise law
Franchisors typically have specific grounds for terminating a franchise agreement, which are usually outlined in the contract. Common reasons in addition to those noted above may include delays or failure to make required payments such as royalties or fees. Another common reason is the failure to maintain the quality or service standards expected by the franchisor.
Franchisees who find themselves facing termination of their agreement must carefully evaluate their situation and consider the available legal recourse. Understanding the grounds for termination and exploring options such as negotiation, mediation, arbitration, and litigation can help franchisees protect their rights and interests. It is wise to consult with legal counsel with experience in this area of law. We offer free consultations to discuss the issue and help franchisees get a better understanding of these options.
