You received a franchise termination notice. Maybe it was expected, or maybe it wasn’t—but now you are facing a high-risk situation that you never expected when you signed your franchise agreement. In this situation, what can (and should) you do? Equally important, what should you avoid doing, and what (if anything) can a franchise lawyer do to help?
If you have received a franchise termination notice from your franchisor, it is critical to ensure you make informed decisions with your long-term best interests in mind. Whether you are hoping to save your franchise or ready to move on, the decisions you make now could impact your finances and business prospects for years to come.
What to Do if You Received a Termination Notice from Your Franchisor
We’ll talk about what to do first. If you have received a termination notice from your franchisor, you should take the following steps promptly:
1. Read Your Franchise Termination Notice Carefully
First, you should read your franchise termination notice carefully. If you have already read it, you should read it again. In particular, you should pay attention to the following details:
- What date is the termination notice effective? Is your franchisor claiming that your franchise has been terminated effective immediately? Or, is it providing 30 or 60 days’ advance written notice?
- Does the notice state the reason for termination? Is your franchisor seeking to terminate your franchise agreement for cause? If so, does the notice state the “cause” for your termination?
- Does the termination notice say anything about a right to cure? If your franchisor is seeking to terminate your franchise agreement for cause, does the termination notice say anything about a right or opportunity to cure?
The reason (or purported reason) for your franchisor seeking to terminate your franchise is particularly important. If your franchisor is seeking to terminate your franchise agreement for cause but the “cause” is not stated in the termination notice, you will want to try to get to the bottom of this as soon as possible. While you can seek additional information on your own, in this scenario, it is generally prudent to hire a franchise lawyer to engage with your franchisor on your behalf.
An experienced franchise lawyer will know what questions to ask, and communicating with your franchisor through your lawyer can help you avoid miscommunications, contentious disagreements, and other issues that can make it more difficult to achieve a favorable resolution. As we discuss below, there are several other important ways an experienced franchise lawyer can help you in this situation.
2. Read the Termination Provisions of Your Franchise Agreement Carefully
Along with carefully reading your termination notice, you should also carefully read the termination provisions of your franchise agreement. In particular, you will want to locate and review the following clauses:
- Grounds for termination
- Notice and opportunity to cure
- Effect of termination (or post-termination obligations)
The grounds for termination stated in your franchise agreement may or may not be exclusive. As a result, if your franchisor is seeking to terminate your franchise based on an alleged breach or default that is not listed in your franchise agreement, this may or may not provide you with a defense. If you have committed a curable breach or default, you will need to know how much time you have to effect a cure before your franchisor has the right to formally and finally terminate your franchise.
Along with reading the termination provisions of your franchise agreement, you should also read its dispute resolution provisions. If you have grounds to fight termination, what steps will you need to take? If you have claims against your franchisor, how will you need to assert them? When you are facing termination as a franchisee, you need to consider all the options available to you (more on this below). Even if you don’t necessarily want to pursue mediation or arbitration, ensuring that you say and do the right thing can help establish leverage and facilitate good-faith negotiations to either preserve the relationship or part amicably.
3. Make Sure You Know Whether Your State Has a Franchise Relationship Law
Several states have franchise relationship laws that restrict franchisors’ ability to terminate franchisees. These laws provide franchisees with important rights and protections, even if they are not stated in their franchise agreements. Some common examples include:
- Prohibitions on franchisee discrimination
- Prohibitions on wrongful refusals to renew
- Requirements to only terminate franchisees’ rights for “good cause”
If your state has a franchise relationship law, this is an important fact you need to know—and reviewing the specific rights and protections your state’s law provides will be critical for making informed decisions about your next steps. Keep in mind, these laws go by different names. For example, while many states have separate franchise disclosure laws and franchise relationship laws, Illinois’s Franchise Disclosure Act includes both disclosure-related and relationship-related protections.
4. Start Gathering Relevant Documentation
Another important step after receiving a franchise termination notice is to begin gathering relevant documentation. The more documentation you have, the better—so spend some time and aim to be as comprehensive as possible. In particular, you should try to locate:
- All relevant communications (i.e., communications regarding the purported basis for termination of your franchise)
- Any records that are relevant to the breach or default at issue, if applicable (i.e., sales and accounting records if your franchisor is accusing you of underpaying royalties)
- Any other documents that you believe may be relevant to the situation at hand (i.e., your franchisor’s operations manual or communications with other franchisees)
For now, you should keep these records to yourself. Once you hire a franchise lawyer and your lawyer has had time to review the records you have, your lawyer will be able to help you decide how best to respond to your franchisor. Responding effectively will require a clear understanding of the relevant facts and the relevant law, so it is strongly in your best interests to rely on the advice and representation of an experienced franchise lawyer who has helped franchisees in your situation many times before.
5. Contact a Franchise Lawyer Who Can Help You Determine Your Next Steps
As a franchisee, responding to a termination notice is not something you should try to do on your own. There are both steps you need to take and mistakes you need to avoid; and, as we discussed above, how you respond to the termination notice could impact your finances and business prospects for years to come. In this situation, hiring an experienced franchise lawyer is well worth it, and having someone involved who knows the law and who has your best interests in mind can help ensure that you do not suffer unnecessary consequences.
What Not to Do if You Received a Termination Notice from Your Franchisor
In addition to the steps we just discussed, if you have received a termination notice from your franchisor, there are also some things you need to avoid to protect your rights going forward. For example:
1. Do Not Wait Until the Last Minute to Deal with Your Termination Notice
When facing termination of your franchise, you want to give yourself as much time as possible to deal with the situation. With this in mind, you should not wait until the last minute to deal with your termination notice. Instead, you should promptly engage a franchise lawyer and begin formulating your response strategy.
2. Do Not Attempt to Retaliate Against Your Franchisor
Regardless of what you think about your franchisor or your termination notice, you should not attempt to retaliate in any way. Breaching your franchise agreement or going public will only make the situation worse and could lead to termination even when your franchise could otherwise have been saved.
3. Do Not Walk Away from Your Franchise
Even if you are prepared to move on, you should not simply walk away from your franchise. This can lead to unnecessary consequences as well.
4. Do Not Overlook the Consequences of Termination
If you lose your franchise, you will be subject to all of the post-termination provisions in your franchise agreement (unless they are unenforceable under your state’s law). These include the agreement’s non-competition and non-solicitation covenants, among others.
5. Do Not Overlook Options You May Have Available
From negotiating an amicable resolution to filing a claim against your franchisor for breach, discrimination, or wrongful termination, you may have a variety of options. With all that you have at stake, it is important not to overlook any options you may have available.
Schedule an Appointment with National Franchise Lawyer Jeffrey M. Goldstein
Have you received a termination notice from your franchisor? If so, we encourage you to contact us promptly. To schedule a free consultation with national franchise lawyer Jeffrey M. Goldstein, call 202-293-3947 or request a free consultation online now.
