Scott McIntosh and Emily Plakon Write Franchise Law Journal Article About Alternatives to Terminating Franchise Agreements
Quarles & Brady Litigation & Dispute Resolution attorneys Scott McIntosh and Emily Plakon wrote a Franchise Law Journal article about alternatives to terminating franchise agreements. They address a variety of potential alternatives to termination, evaluate these alternatives, provide a deeper summary of the special case of step-in rights, address the application of statutory considerations and explore key considerations that a franchisor should weigh when considering whether an alternative to termination will aid the franchisor in achieving its objectives.
An excerpt:
A franchisor can invoke such a provision to provide refresher training or to ensure that a franchisee’s management is well-versed in the requirements of the franchisor’s system, particularly after a turnover in key personnel at the franchisee. When supplemental or remedial training is available to address the particular defaults at issue, such a tool is an ideal first step because it may target the root cause of the franchisee’s defaults, leading to ongoing future compliance and ensuring a consistent application of the franchise system, as expected by the consuming public.
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Common events triggering a franchisor to exercise its step-in rights include the following: death or disability of the franchisee or franchisee’s owner; situations where there is no one to operate the business; when the franchisee abandons the business or is absent; when a franchisee’s actions threaten the goodwill or reputation of the franchisor, its marks, or the system; and where the franchisee fails to comply with, or is in default of, the franchise agreement.
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As noted earlier, because this article assumes that the franchisor has determined that it has a right to terminate the franchise agreement under the terms of the agreement and applicable law, the franchisor will already have determined that it has satisfied any “good cause” requirement under applicable law. Implementing minor financial mechanisms, such as a required fee of $100 in the event of a late payment, is highly unlikely to be viewed as effecting a substantial change in competitive circumstances or resulting in a constructive termination. Accordingly, following any statutory notice or cure requirements would not be necessary in those circumstances. Nevertheless, the franchisor would be well-advised to follow all applicable notice and cure requirements when implementing significant contractual alternatives to termination in the same manner as it would when effecting an actual termination.