A recent case involving Applebee’s franchisees seeking legal relief after the franchisor began opening dual-brand Applebee and IHOP locations within existing areas of exclusivity is catching media attention. The franchisees argue that the franchisor is cutting into their profits by opening these combination units within their territory.
The problem is not a new one. Franchisees have experienced similar issues in the past. Those who find themselves in a similar situation are wise to take action to protect their interests. Before choosing a response, it is important to confirm the core facts. Review the language in the agreement about the territory and check to see where the new unit falls within that area. Document the franchisor notice process and the timeline for the new unit as well as the projected competitive overlap.
With this information gathered and ready, franchisees can use the legal system to help with two main goals: protect their franchise while stopping the opening of the new unit.
Injunction to stop franchisor from ending franchise agreement
Some franchisors respond to a territory dispute with default notices, nonrenewal threats or termination notices. An injunction may be the fastest tool to prevent termination while the underlying dispute proceeds.
Courts may review various factors, but four common examples often include: likelihood of success on the merits, irreparable harm, balance of hardships and public interest. In franchise cases, irreparable harm arguments often focus on loss of goodwill, customer relationships and the inability to recapture market position. Contract provisions on termination, cure periods, notice requirements, good faith and fair dealing can play a central role in these decisions.
The request for relief through an injunction must be supported by evidence, not conclusions. A franchisee should expect the franchisor to fight back. Prepare careful documentation to support your case.
Injunction to stop opening of the new unit
If a new unit is imminent, an injunction can target the opening itself. This remedy is fact intensive. Some agreements expressly allow encroachment through alternative channels. Some provide exclusive territories with defined boundaries. Others disclaim exclusivity entirely. Review your arrangement so you have a clear understanding of what is and is not allowed. Look for clear territory language, express exclusivity, a defined radius, a noncompete covenant running against the franchisor or documented precontract representations to strengthen the claim.
Other options
Although it is wise to move forward and prepare for potential litigation, this is only one path towards a resolution. Encroachment within the franchise world is a serious, and well studied, issue. Many disputes resolve through contract interpretation, negotiated adjustments and financial offsets. The best path depends on timeline, contract leverage, local franchise statutes and the franchisee relationship goals.
Before choosing a strategy, confirm what the agreement actually promises, then sequence the response to protect rights without triggering avoidable default claims. This could include the following pathway:
- Issue a formal notice of breach, request cure and take steps to reserve rights
- Demand documents on site approval, territory analysis and system exceptions
- Propose remedies such as relocation, delayed opening, royalty relief, marketing credits and boundary adjustment
- Evaluate arbitration clauses, venue clauses and injunction carveouts
- Consider a measured public-facing plan to protect goodwill without defamation risk
After these steps, decide whether to pursue emergency relief, a standard breach claim, a statutory franchise claim where applicable or a business resolution.
The opening of a second unit inside a franchisee territory can create immediate damage and long term brand disruption. The franchisee options turn on contract language, proof of encroachment and actual harm. Early documentation, disciplined compliance and timely legal action create the best position for either injunction relief or a negotiated solution.
Those who are considering action can reach out to our firm, we offer free consultations and can help you get a better understanding of your options.
