When Can a Franchisor Terminate a Franchise Agreement?

Under a typical franchise agreement, the franchisor’s and franchisee’s relationship can end in one of two ways: (i) the franchise agreement can expire at the end of an initial or renewal term, or (ii) one party (most likely the franchisor) can terminate the agreement before it expires.

Franchisors routinely reserve the contractual right to terminate their franchisees “for cause.” A for-cause termination involves ending the relationship based upon a default under the franchise agreement, most commonly the franchisee’s failure to pay royalties. However, even in a situation where the franchisor has reserved broad rights to terminate, there are a variety of circumstances under which the franchisee will be able to seek legal remedies for a wrongful termination.

Understanding Wrongful Termination of a Franchise Agreement

What makes a franchise termination “wrongful”? A termination is considered wrongful any time a franchisor terminates a franchisee in without the legal right to do so. This includes terminations in bad faith, terminations in violation of the terms of a franchise agreement, and terminations in violation of state law. Some of the most-common examples of franchisees’ claims in wrongful termination litigation include:

  • The franchisor terminated on grounds not provided for in the franchise agreement;
  • The franchisor falsely alleged a material default or failure to cure;
  • The franchisor violated the franchisee’s rights under a state franchise relationship law;
  • The franchisor refused to renew the franchise agreement in bad faith; and,
  • The franchisor manufactured an alleged default in order to justify a termination pursued for other reasons (i.e. to open up a territory for a strong franchise candidate).

In many cases, franchisors will go to great lengths to “paper” supposed grounds for termination when they want a franchisee out of their system. This typically includes sending emails detailing alleged violations of the franchise agreement or operations manual, sending an initial default letter, sending follow-up letters warning of potential termination, and notifying franchisees that they have failed to cure the alleged defaults (regardless of whether there was ever actually a default, and regardless of whether the franchisee took the necessary steps to cure). Once the franchisor (and its defense team) believes that there is sufficient evidence to substantiate a default-based termination, then it will send a formal notice of termination.

A Franchising Lawyer Can Help Secure Your Personal Financial Resources

Every franchisee or dealer, at one point or another, considers the consequences of a termination by his or her franchisor, supplier or manufacturer. Many times this dire situation does not actually arise; however, too many other times it does. A wrongful termination has the potential to destroy not only your entire franchise or distribution business, but also all of your personal financial resources – even those wholly unrelated to the franchise or dealership business. A personal guarantee is almost always included – in an attachment or the fine-print — in every franchise and distribution agreement.

Many franchisees simply wait too long before calling a franchise attorney in the face of a threatened termination. Quick action by an experienced franchise lawyer is absolutely crucial in the face of a threatened franchise termination, as courts will almost always refuse to ‘undo’ a franchise or dealer termination that has already been effectuated – even if the termination is itself wrongful or unreasonable. Courts are not willing to try to unscramble an already scrambled-franchise termination.

And, even if a wrongful dealer or franchise termination is caught early enough, many franchisees are left devastated by their failure to obtain a lawyer with the requisite franchisee litigation experience and expertise. Many lawyers without franchise experience and expertise are not able to make the obscure and complex arguments necessary to convince a court to block a wrongful termination pending a full trial on the merits of the case. Emergency injunctive relief, based upon hundreds of years of esoteric and complex equitable case law, is an extraordinary remedy in all courts and arbitrations. The franchise lawyers at the Goldstein Law Firm have demonstrated for over thirty years their ability to regularly achieve such extraordinary remedies on behalf of their franchisee and dealer clients.

Success Of Goldstein Law Firm Combatting Wrongful Terminations

Jeff Goldstein and the lawyers at the Goldstein Law Firm have over thirty years of experience and a proven track record in successfully representing only franchisees in wrongful termination cases in federal and state courts throughout the country. The success that the Goldstein Law Firm and Jeff Goldstein have obtained in blocking wrongful terminations through obtaining emergency injunctions on behalf of their franchisee and dealer clients is remarkable. These triumphs extend to stopping franchisors, suppliers and manufacturers from enforcing post-termination covenants not to compete; these restrictive covenants prevent franchisees and dealers from working in the same field or occupation following a termination.

Jeff Goldstein and lawyers at the Goldstein Law Firm, which represents only franchisees in cases around the country, have earned the legal respect of franchisors, suppliers and distributors in all regions and in prolific industries. Although franchise laws around the country have changed radically over the last 10-15 years in favor of franchisors, such that alleged multi-million dollar verdicts on behalf of franchisees either are relatively ancient, never were paid, or in truth just no longer occur, Jeff Goldstein and his associates are nevertheless still highly successful in obtaining compensation for wrongfully terminated franchisees in appropriate circumstances.

What To Do If You Suspect A Wrongful Termination Is In The Cards

Timing is almost everything in the face of a wrongful franchise termination. History shows that many wrongful terminations are predictable and preventable. In most termination situations, franchisors, suppliers and manufacturers will initially send out default or warning letters of some type in which they attempt to nimbly set-up franchisees and dealers for a subsequent termination. Making matters worse, many times there is no rhyme or reason for a wrongful termination; in these cases the franchisor does not expectedly take over and operate or re-sell a terminated franchise. The location is simply abandoned.

As soon as you obtain any sense of displeasure regarding your franchise or dealership from your franchisor, supplier or manufacturer, you should react quickly; after reading this and other articles on this site, you should be on notice that such dissatisfaction, in the current legal climate, is easily turned into a legally justifiable termination. To effectively combat an actual or anticipated termination by your franchisor, supplier or manufacturer, you should contact franchising lawyer Jeff Goldstein at the Goldstein Law Firm. Don’t let your franchisor or supplier’s simple legal maneuvering destroy your business and personal fortunes.

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