According to news reports, over the past 10 months Dunkin’ Donuts Franchising LLC has sued more than 30 of its franchisees alleging that they have hired undocumented workers in violation of federal law and the terms of their franchise agreements. As a remedy, the franchisor is not seeking to compel proof that the franchisees’ employees are lawfully in the United States or that they only employ documented workers, but instead it is seeking to terminate their franchises. At least one franchisee has countersued alleging that it was not afforded a sufficient opportunity to cure and that Dunkin’ is attempting to resell its franchise without any payment of compensation.
As summarized by The New Food Economy:
“Since September 2018, the company has sought to close almost 30 East Coast restaurants, bringing their owners to court in a recognizable pattern. In at least three instances, Dunkin’ reviewed store records, found franchisees hadn’t verified the employment status of their workers, moved to terminate the franchise agreement, and then took the store owners to court to enforce it. . . . Dunkin’ has a reputation for taking franchisees to court who don’t comply. During an 18-month period in 2006 and 2007, for example, the company filed over 100 lawsuits, the vast majority of which were brought against store owners . . . .”
The current spate of lawsuits is interesting for a number of reasons, not the least of which is that they appear to be one of the first efforts in franchising to remove a large number of franchisees based solely on alleged employment-related violations. As The New Food Economy reports, Dunkin’ may also have an ulterior motive, as it has been actively lobbying on immigration-related issues for more than a decade. The geographic scope of the franchisor’s enforcement efforts – apparently limited to franchisees in Delaware, New Jersey, and Virginia – is noteworthy as well, and it at least arguably suggests that the lawsuits are not so much about enforcement as they are about removing selected franchisees in order to make room for others.
Challenging Wrongful Franchise Terminations
While virtually all franchisors reserve broad rights of termination (including the right to terminate for violations of the law), their right to terminate is not absolute. Franchisors must comply with the provisions of their franchise agreements, including affording franchisees any specified “opportunity to cure,” and many states have franchise relationship laws that limit the grounds for termination. As a result, while franchisors will often be well within their rights to terminate underperforming or noncompliant franchisees, there are many scenarios in which franchisees may have grounds to prevent or pursue remedies for wrongful termination as well. Learn more: When is a Franchise Termination “Wrongful”?
Contact Franchise Litigation Attorney Jeffrey M. Goldstein
Are you facing termination of your franchise agreement? Could your franchisor’s efforts be “wrongful”? To find out in a free and confidential consultation with franchise litigation attorney Jeffrey M. Goldstein, call us at 202-293-3947 or request an appointment online today.
