Termination and Non-Renewal of a Franchise
A sudden termination or refusal to renew a franchise can devastate a business owner. We represent franchisees facing wrongful termination, unfair non-renewal, or significant operational changes imposed without proper notice. Our goal is to help you understand your legal standing, challenge improper actions, and explore all options for compensation or reinstatement.
Limits on Termination.
If you have been threatened with, or already suffered, termination of your franchise, you should understand your rights. In Washington and several other states, franchise statutes prohibit termination except for good cause. If the claimed good cause is a breach of the franchise agreement, it must be a material breach. Even if there is good cause, such statutes often require that you be given notice and a reasonable opportunity to cure before you can be terminated. Only after multiple (up to three in some states) violations of the same material term of the franchise agreement can termination occur without another notice and opportunity to cure. By imposing these limitations, the legislatures recognized that franchisees make substantial investments in their franchises, and that it would not be fair for the franchisor to be able to take them away based on a trivial infraction or an isolated error.
Limits on Nonrenewal
Generally, state franchise laws do not give franchisees an enforceable right to renewal of their franchise for an additional term. Washington and a few other states require that, if the franchisor wants not to renew a franchise, they must give a written notice far in advance and pay for certain things the franchisor required them to buy. The Washington law also requires payment of the value of the franchisee’s goodwill. In reality, it is seldom very satisfying to receive a payment of a few thousand dollars as the only return on an investment of a million dollars or more. In Washington, if the franchisor fails to provide a year’s advance notice of nonrenewal, they may lose the ability to enforce any post-term covenant against competition. In the right case, that may be the most effective lever to get fairness for the franchisee. However, notices are easy to give and there need be no “good cause”. Because there is no protection for franchisees’ investment after the end of any term, it may be best to view a franchise as renting a business for a period of three to ten (or more) years. That means unless the franchisee can make a profit and realize a reasonable return on their investment within the term, they will have lost their unrecovered investment at the end of the term. This is one reason that extensive due diligence, before investing, regarding the historic and potential profitability of the franchise, is critical. No one should enter a franchise knowing there is a high probability that they will work hard for five or ten years only to forfeit their investment in the end.
You Need Experienced Legal Advice
The lawyers at Bundy & Fichter PLLC have been helping franchisees threatened with or in the middle of a termination or non-renewal for a combined total of more than half a century. You may want to avoid termination, you may want to try to recover your lost investment, you may just want to avoid the terms of the covenant against competition in the franchise agreement. The law relating to termination and nonrenewal of franchises is nuanced and complex. An experienced franchise lawyer may be able to help you determine what your goal should be and evaluate the chances of achieving it or an alternative. The lawyers at Bundy & Fichter PLLC would be happy to help you. Please contact us.