If you and your franchisor have agreed to part ways, finalizing the terms of your separation will involve negotiating a settlement agreement. Give this part of the process the time and attention it deserves, as agreeing to unfavorable settlement terms can have serious financial and legal implications. Learn about some key considerations from national franchisee attorney Jeffrey M. Goldstein.
Voluntarily terminating a franchise before the end of a franchisee’s term involves entering into a binding settlement agreement. Negotiating a written agreement is crucial, as simply agreeing to part ways without formal documentation will leave far too many questions unanswered.
For franchisees, experienced legal representation is important at this stage. Franchisees need to make informed decisions focused on their long-term best interests, and they need to avoid agreeing to terms that have unfavorable financial or legal implications. If it is time for you and your franchisor to part ways, an experienced franchisee attorney can help you negotiate reasonable terms that protect your best interests going forward.
What Are Some Key Factors to Consider When Negotiating the End of Your Franchise?
Several key factors come into play when negotiating the end of your franchise. To ensure that you are protecting your best interests and preserving your opportunities going forward, you will want to consider factors including (but not limited to):
Post-Termination Obligations
When you terminate your franchise agreement, you can expect various post-termination obligations. Broadly, these obligations should relate to de-branding your business and ceasing all use of the franchisor’s standards and systems. However, franchisors can—and do—overreach, and it will be important to ensure that you do not unnecessarily agree to any post-termination obligations that are not strictly necessary for protecting your franchisor’s intellectual property.
Non-Competition and Non-Solicitation Covenants
Franchisors frequently seek to include non-competition and non-solicitation covenants in settlement agreements with their franchisees (in addition to including these covenants in their franchise agreements). Whether you should agree to these restrictions depends on the specific circumstances. If you agree to any competitive restrictions or restrictions on soliciting your customers, clients, or employees, it will be important to make sure that these restrictions are appropriately limited in both scope and duration.
Confidentiality Requirements
Franchisors frequently include strict confidentiality clauses in settlement agreements with their franchisees as well. Protecting the confidentiality of settlement terms is generally a legitimate business interest, and you may also have an interest in keeping the terms of your settlement confidential. Here too, make sure your franchisor isn’t overreaching, and make sure your settlement agreement’s confidentiality clause isn’t so broad that it has unintended (and unfavorable) implications.
Waivers of Claims
A settlement agreement used to end a franchise relationship will typically include waivers of claims by both parties. Your franchisor will waive any claims against you, and you will waive any claims against your franchisor.
Or, at least, that’s how it should be. If your settlement agreement’s waiver provisions are not mutual—or not sufficiently comprehensive—this could leave you facing liability exposure going forward. Generally, this is an outcome franchisees exiting the system can (and should) avoid.
Indemnification Obligations
Like one-sided waiver provisions, one-sided indemnification obligations can also pose ongoing risks for franchisees exiting the system. In most circumstances, franchisees exiting the system on mutually agreeable terms should be able to move forward with a clean slate regarding potential liability exposure.
FAQs: Negotiating the Termination of Your Franchise Agreement
Should I hire an attorney if my franchisor and I have agreed to terminate my franchise agreement?
Yes. If you and your franchisor have agreed to terminate your franchise agreement, consult an experienced franchisee attorney before moving forward. This scenario carries several potential risks that require careful consideration. An experienced franchisee attorney can help you consider all pertinent risks and make informed decisions focused on protecting your interests now and in the future.
My franchisor will let me terminate my franchise, but only if I sign a termination agreement. Should I?
You should not sign anything in this scenario until you consult an experienced franchisee attorney. If your franchisor is agreeing to let you out of your franchise agreement, it is almost certainly expecting a lot in return. Its proposed termination agreement is probably heavily one-sided, and signing it could make your situation worse instead of making it better.
What if I have grounds to pursue legal action against my franchisor?
If you have grounds to pursue legal action against your franchisor, you will need to consider that when deciding whether to sign a settlement agreement that includes a mutual waiver of claims. While it may make sense to sign the settlement agreement and move on, it may also make sense to leverage your claim in settlement negotiations, or even to pursue your claim instead of agreeing to a settlement at this stage.
How Franchisee Attorney Jeffrey M. Goldstein Can Help
Jeffrey M. Goldstein is a nationally recognized franchisee attorney with well over 30 years of experience protecting his clients’ rights in and out of court. If you are preparing to end your relationship with your franchisor, he can provide the advice and insights you need to feel confident making decisions about how to move forward.
Contact Us to Schedule a Free and Confidential Consultation at Goldstein Law Firm
If you would like to speak with Mr. Goldstein about ending your franchise, we invite you to get in touch. To schedule a free and confidential consultation at Goldstein Law Firm, call us at 202-293-3947 or contact us online today.
