In Illinois, the following Dealer/Franchise Termination and Non-Renewal Laws, Fraud, and Franchise Industry-Specific Laws exist:
- Illinois Has a Disclosure/Registration Franchise Law
- Illinois Has a Relationship/Termination Franchise Law
- Illinois Has a General Business Opportunity Franchise Law
- Illinois Has an Alcoholic Beverage Wholesaler/Franchise Law
- Illinois Has an Equipment Dealer/Franchise Law
- Illinois Does Not Have a Gasoline Dealer/Franchise Law
- Illinois Does Not Have a Marine Dealer/Franchise Law
- Illinois Has a Motor Vehicle Dealer/Franchise Law
- Illinois Has a Motorcycle Dealer/Franchise Law
- Illinois Does Not Have a Recreational and Power Sports Vehicle Dealer/Franchise Law
- Illinois Does Have a Restaurant Liability Law
Illinois regulates certain aspects of the ongoing franchise relationship through its Franchise Disclosure Act of 1987 (“IFDA”).
Section 705/19 governs franchise terminations. The IFDA makes it a violation for a franchisor to terminate a franchise prior to the expiration of its term except for "good cause." In turn, the IFDA defines “good cause” as including, but not be limited to, the failure of the franchisee to comply with any lawful provisions of the franchise or other agreement and to cure such default after being given: (1) notice thereof and (2) a reasonable opportunity to cure such default. The cure period under the Act need not be more than 30 days.
The IFDA goes on to create a certain sub-category of “good cause” terminations that do not require notice and an opportunity to cure. In this regard, the Act states that "good cause" shall include, but without the requirement of notice and an opportunity to cure, situations in which the franchisee: (1) makes an assignment for the benefit of creditors or a similar disposition of the assets of the franchise business; (2) voluntarily abandons the franchise business; (3) is convicted of a felony or other crime which substantially impairs the good will associated with the franchisor's trademark, service mark, trade name or commercial symbol; or (4) repeatedly fails to comply with the lawful provisions of the franchise or other agreement.
Section 705/20 of the IFDA deals with franchise non-renewals. Section 20 expresses that it is a violation of the Act for a franchisor to refuse to renew a franchise without compensating the franchisee either by repurchase or by other means for the diminution in the value of the franchised business caused by the expiration of the franchise where: (a) the franchisee is barred by the franchise agreement (or by the refusal of the franchisor at least 6 months prior to the expiration date of the franchise to waive any portion of the franchise agreement which prohibits the franchisee) from continuing to conduct substantially the same business under another trademark, service mark, trade name or commercial symbol in the same area subsequent to the expiration of the franchise; or (b) the franchisee has not been sent notice of the franchisor's intent not to renew the franchise at least 6 months prior to the expiration date or any extension thereof of the franchise.
Section 705/18 of the IFDA deals with discrimination between franchisees. Section 18 declares that it will be an unfair franchise practice and a violation of this Act for any franchisor to unreasonably and materially discriminate between franchisees operating a franchised business located in this State in the charges offered or made for franchise fees, royalties, goods, services, equipment, rentals or advertising services, if such discrimination will cause competitive harm to a franchisee who competes with a franchisee that received the benefit of the discrimination. However, it also creates an exception to this rule for any classification of or discrimination between franchisees that is: (a) based on franchises granted at different times, and such discrimination is reasonably related to such differences in time; (b) related to one or more programs for making franchises available to persons with insufficient capital, training, business experience or education, or lacking other qualifications; (c) related to local or regional experimentation with or variations in product or service lines or business formats or designs; (d) related to efforts by one or more franchisees to cure deficiencies in the operation of franchise businesses or defaults in franchise agreements; or (e) based on other reasonable distinctions considering the purposes of this Act and is not arbitrary.
Section 705/17 of the IFDA declares that it is an unfair franchise practice and a violation of this Act for a franchisor to in any way restrict any franchisee from joining or participating in any trade association.
Section 705/26 of the IFDA creates private civil actions. Section 26 directs that any person who offers, sells, terminates, or fails to renew a franchise in violation of this Act shall be liable to the franchisee who may sue for damages caused thereby. The Act also creates liability for agents of the franchisor when it states that the term "franchisee" shall include the personal representative or representatives of the franchisee. In addition, the Act, in great detail, creates shared liability for many individuals associated with the franchisor when it states that every person who directly or indirectly controls a person liable under this Section 26, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every manager of a limited liability company so liable, every person occupying a similar status or performing similar functions, and every employee of a person so liable, who materially aids in the act or transaction constituting the violation, is also liable jointly and severally with and to the same extent as such person. The IFDA also, however, provides a statutory defense to such persons when it exempts from liability persons who, otherwise liable under the Act, “had no knowledge or reasonable basis to have knowledge of the facts, acts or transactions constituting the alleged violation.” The Act also provides costs to a successful franchisee: “Every franchisee in whose favor judgment is entered in an action brought under this Section shall be entitled to the costs of the action including, without limitation, reasonable attorney's fees.”
As do other franchise relationship laws, the IFDA specifically states that nothing in the Act will limit any liability which may exist by virtue of any other statute or under common law if this Act were not in effect.
Illinois State Franchise Disclosure/Registration Laws
Franchise Disclosure Act
815 Illinois Compiled Statutes Sec. 705/1 through 705/44
Illinois State Franchise Relationship/Termination Laws
Franchise Disclosure Act (portions)
815 Illinois Compiled Statutes Sec. 705/18 through 705/20
Illinois State Business Opportunity Laws
Business Opportunity Sales Law
815 Illinois Compiled Statutes Sections 602/5-1 through 602/5-145
Illinois Alcoholic Beverage Franchise/Wholesaler Laws
Illinois beer law
815 Ill. Comp. Stat. Ann. §720/1 to §720/10 .
Illinois Equipment Franchise/Dealer Laws
Illinois Equipment Fair Franchise/Dealership Law
815 Ill. Comp. Stat. Ann. §715/1 to §715/11
Illinois Gasoline Franchise/Dealer Laws
Illinois Has No Franchise-Specific Law in this Area
Illinois Marine Franchise/Dealer Laws
Illinois Has No Franchise-Specific Law in this Area
Illinois Motor Vehicle Franchise/Dealer Laws
Illinois Motor Vehicle Franchise Act
815 Ill. Comp. Stat. Ann. §710/1 to §710/32
Illinois Motorcycle Franchise/Dealer Laws
Illinois motorcycle Franchise/Dealer law
815 Ill. Comp. Stat. Ann. §710/10.1 .
Illinois Recreational and Powersports Vehicle Franchise/Dealer Laws
Illinois Has No Franchise-Specific Law in this Area
Illinois Commonsense Consumption Act
745 Ill. Comp. Stat. Ann. §43/1 to §43/20
Bell v. Bimbo Foods Bakeries Distribution, Inc., United States District Court, N.D. Illinois, Eastern Division, July 2, 2012, 2012 WL 2565849 (“The Illinois Franchise Disclosure Act prohibits a franchisor from terminating a franchise before the expiration of the franchise term except for good cause. 815 ILCS 705/19. Illinois courts have not considered whether termination under the Act includes only actual termination or also encompasses some form of “constructive termination.” Although Illinois courts have not explicitly addressed this question, one can draw parallels from the Illinois courts' recognition of constructive termination in the employment discrimination context, under the Illinois Human Rights Act, 775 ILCS 5/1–101 et seq. See Stone v. Dep't of Human Rights, 299 Ill.App.3d 306, 233 Ill.Dec. 397, 700 N.E.2d 1105, 1112 (Ill.App.Ct.1998); Steele v. Ill. Human Rights Comm'n, 160 Ill.App.3d 577, 112 Ill.Dec. 568, 513 N.E.2d 1177, 1179–80 (Ill.App.Ct.1987) (“Constructive discharge occurs when an employer deliberately makes an employee's working conditions so intolerable that the employee is forced to resign involuntarily....”). Although the Illinois Human Rights Act does not explicitly prohibit constructive termination based on discrimination, 775 ILCS 5/2–102, Illinois courts approved the cognizability of such claims from the general prohibitions on discrimination. Steele, 112 Ill.Dec. 568, 513 N.E.2d at 1179. In order to amount to constructive termination, an employer's conduct must have resulted in “working conditions ... so difficult or unpleasant that a reasonable person in the employee's shoes would have felt compelled to resign.” Id. at 1180 (quotation and citation omitted). For example, a single instance of demotion, unaccompanied by any other discriminatory acts, does not comprise a constructive discharge where the employee retains the same salary and benefits in spite of any perceived reduction in responsibility. Id. at 1181. Courts elsewhere have also recognized constructive termination claims under similar state franchise protection statutes. See, e.g., Girl Scouts of Manitou Council v. Girl Scouts of USA, 646 F.3d 983, 989 (7th Cir.2011) (Wisconsin law); Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1181–82 (2d Cir.1995) (Connecticut law). The reason for this, as in the employment context, is to avoid leaving “a big loophole” that would allow franchisors to force franchisees out without officially terminating them, thus circumventing the statute. Al's Serv. Ctr. v. BP Prods. N. Am., Inc., 599 F.3d 720, 726 (7th Cir.2010). In light of the analogy to the Illinois Human Rights Act, and the supporting case law interpreting other states' franchise laws, a constructive termination should qualify as a “termination” under the Illinois Franchise Disclosure Act. The Court need not, however, decide that question definitively, because there has been no termination here, constructive or otherwise. Assuming, for purposes of this case, that there can be a cause of action for constructive discharge under the Franchise Disclosure Act, Bell has not alleged that the distributorship has terminated. That is, there is no allegation that Bell's actual distributorship has come to an end. On the contrary, Bell continues to operate the business under his Distributor Agreement. R. 36 ¶¶ 6, 23. Because Bell's distributorship is ongoing, Bell cannot allege that Bimbo engaged in conduct that rendered Bell's situation so untenable that it effectively forced him out of his distributorship. In Mac's Shell Service v. Shell Oil Products Co., the Supreme Court declined to decide whether the Petroleum Marketing Practices Act-a federal statute that protects gas station franchisees-created a cause of action for constructive termination. ––– U.S. ––––, ––––, 130 S.Ct. 1251, 1257, 176 L.Ed.2d 36 (2010). But if it did create such a claim, the Court held, a necessary element of the claim would be that the franchisor's conduct forced an end to the franchisee's use of the franchisor's trademark, purchase of the franchisor's fuel, or occupation of the franchisor's service station. Id.
The statute, the Court noted, does not prohibit “[c]onduct that does not force an end to the franchise.” Id. at 1257–58. Similarly, in Girl Scouts of Manitou Council, the Seventh Circuit found constructive termination when the defendant, a national scouting organization, proposed transferring a local scouting council's entire territory to other councils, effectively eliminating the local council. 646 F.3d at 990; see also Remus v. Amoco Oil Co., 794 F.2d 1238, 1240 (7th Cir.1986) (interpreting Wisconsin franchise law and describing constructive termination as the franchisor “driv[ing] the dealer out of business” and “the franchisor's making the dealer's competitive circumstances so desperate that the dealer ‘voluntarily’ gives up the franchise”). Bell does not allege facts that show Bimbo is driving him out of business. He argues that Bimbo's decision to market Sara Lee bakery goods, especially sliced bread, within his sales area “seriously and materially and directly undermines” his franchise agreement and “abrogates the sine qua non of the ‘Distributor Agreement[ ],’ “ thus “effectively terminat [ing] the franchise agreement” without good cause. R. 36 ¶¶ 75, 76. But the complaint contains no allegation that Bimbo has driven Bell out of business or made his competitive circumstances so desperate that he feels he must quit; to the contrary, the franchise remains intact. Bell tries to overcome this hurdle by arguing that Bimbo “terminated an essential element of [his] franchise by eliminating the exclusivity of [his] sales territory.” R. 44 at 11. But case law analogous to a potential claim under Illinois's Franchise Disclosure Act does not support Bell's “essential element” argument: as the Supreme Court noted in Mac's Shell, “a plaintiff must actually sever a particular legal relationship in order to maintain a claim for constructive termination.” 130 S.Ct. at 1258. To recover for constructive discharge in the employment context, an employee generally is required to quit his or her job; to claim constructive eviction in the landlord-tenant context, the “general rule ... is that a tenant must actually move out.” Id. The Supreme Court saw no reason why a different understanding should apply to constructive termination claims under the federal petroleum marketing statute, particularly because franchisees could pursue state-law breach of contract remedies for franchisor actions that did not cause an end to the franchise. Id . at 1259. Indeed, Bell also alleges breach of contract in his complaint. R. 36 at 21 (Count Six). What Bell has not alleged is that his distributorship or franchise has actually terminated, and that is what would be required under the Illinois Franchise Disclosure Act. Because Bimbo has not actually terminated Bell's franchise and because Bell has not alleged facts that support a constructive termination claim, he has failed to state a claim for wrongful termination under the Illinois Franchise Disclosure Act. Count Five is dismissed with prejudice. “)