A California Franchise Lawyer Who Can Stop a Franchisor from Terminating Your Franchise
Franchisees who have breached their franchise agreement may receive notices of default. When you receive a notice of default, it could mean you are a month or less away from your franchise being terminated. This is an urgent matter that needs your attention. We help franchisees formulate a strategy in response to default notices so that they can stay in their franchise system if they want to.
Sometimes notices of default are merited, say when a franchise owner does not pay royalties. Sometimes they are not, such as where a franchisor issues a notice of default based on an ambiguous provision in the franchise agreement or an operations manual. Even more often, there are situations where a franchisor has not consistently enforced a provision of the franchise agreement and decides to do so in one circumstance for ulterior motives (perhaps to replace a franchise owner with somebody more preferred by the franchisor).
We help franchisees respond to notices of default.
- First, we will analyze your franchise agreement to determine whether the franchisor correctly identified a default.
- Then, in conversation with you, we will look at whether and to what extent the default or breach can be cured (or corrected).
- Then we will formulate a strategy to put you back on the right track from the franchisor’s point of view, either by curing the default or bringing to the franchisor’s attention that they did not have a right to default you in the first place.
Even where a franchisor has correctly issued a notice of default, that doesn’t mean that a franchisor necessarily has a right to terminate the franchise agreement. Many breaches are not material and do not justify a termination under the franchise agreement or constitute “good cause” under franchise relationship laws. We can push back against the franchisor for attempts to terminate a franchise based on minor breaches of the franchise agreement or where a breach can be cured. We can also argue for cure periods even where the franchise agreement does not provide for them contractually. In short, just because the franchise agreement provides for termination doesn’t mean that’s the end of the story. Often, franchise relationship laws or the implied covenant of good faith and fair dealing can come into play.
Our goal at the start will be to negotiate directly with the franchisor or guide you in your negotiations. Most of the time, we can resolve the situation without having to resort to litigation. But if negotiation doesn’t prove fruitful, we will be prepared to take action in court or arbitration to defend your rights.
Evaluating Your Contractual and Statutory Rights When the Franchisor Decides Not to Renew Your Franchise
After spending years building up their franchise, a franchisee may receive a notice of non-renewal of the franchise. However, a franchisor’s decision not to renew your agreement is not the end of the story. When it comes to renewal, we’re there to ensure that you get a renewal if you’re legally entitled to one or else the damages for the loss of your business. We will look both to your rights in the franchise agreement and any state franchise relationship laws.
The first place we will look at is your franchise agreement and any previously negotiated addendums providing for renewal rights. The franchise agreement may provide you an uninhibited right to renew or at least limit the franchisor’s right not to renew to specifically identified situations (such as repeated failure to pay royalties). We can analyze your rights under the franchise agreement and determine whether a franchisor’s decision not to renew complies. But that’s not the end of the inquiry.
Many states have franchise relationship laws, which provide franchisees additional protections outside of the franchise agreement. These laws limit a franchisor’s right not to renew a franchise agreement. Usually, a franchisor must have “good cause” to terminate or refuse to renew a franchise. A franchisor’s decision to put somebody else in the same territory or take the territory for itself is rarely “good cause.” And if you have not received a notice of default before, there is likely not “good cause.” We have substantial experience litigating this issue and can determine your right to renew.
If You Want to Leave Your Franchise System to Start Your Own Business, Let Us Guide You Around Your Non-Compete and Termination Provisions
It’s often a win-win solution for a franchisee to leave a system if the fit is not right. We can often negotiate a mutual termination with the franchisor in these situations, reducing or eliminating any future owed royalties. If a franchisee wants to leave a system and the franchisor pushes back, we will leverage any violations by the franchisor of franchise disclosure laws or breaches of the franchise agreement. Often, we can show that the issues that prevented your success were caused by the franchisor and facing potential liability, the franchisor will agree to a mutual termination and, in some circumstances, pay back the franchisee for some of the fees or royalties paid.
We also help franchisees when it comes to non-compete provisions. Franchisors often include vastly overbroad and unnecessary non-compete provisions in franchise agreements that prohibit a franchise owner from operating a competing business anywhere in the world. These provisions can be overbroad based on time (too many years), location (too far geographically), or the definition of a competing business (are they really in competition?). We will analyze the validity of the non-compete provisions and determine your rights and any risks associated with establishing a competing business. We can also help you navigate your franchise agreement’s termination provisions and trade secret misappropriation law to ensure that the franchisor cannot rightfully come after you for breaches or misappropriation after you leave.
Contact an Expert in Franchise Termination and Nonrenewal
Leaving a franchise system or facing termination or nonrenewal can be some of the most difficult times of transition for a franchise owner. It helps to have a franchise attorney who can analyze your contractual and statutory rights so that you have all options on your table. Whether you are in Orange County, San Diego, Los Angeles, Southern California, or beyond, to discuss your issues and how we can help, call or email us today to schedule a consultation.