Minneapolis franchisee lawyer Ron Gardner explains what a franchisee can do when the franchisor threatens not to renew the franchisee.
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There’s probably nothing more disappointing to a franchisee who’s been into a system for 5, 10, 20 years to get a notice from their franchisor that says we’re not really interested in being in the relationship with you anymore, but it happens. And so we’ll occasionally get calls from franchisees who’ve gotten a notice of non-renewal and they want to know what they can do. And the truth of the matter is that’s just termination by a different name. The ones were ending the contract early and the other is well, the contract has run its natural course but we’re not going any further. And because those two things are so closely related the contract law, the common law, and the statutes that exist out there treat non-renewal and termination, for the most part, the same. That is that you have to have good cause to non-renew somebody in many, many states. They have to give somebody notice and an opportunity to fix a default. If you’re not renewing for some default you have to give them some chance to try and fix it before you take their livelihood away from them.
And so what needs to be examined is where are you, what is the choice of law provision that’s in your franchise agreement? And even once we know those legal tenets, oftentimes we can call a franchisor and make arrangements and say look, why don’t you extend this person? What can they do? Or can we extend them for a certain amount of time so they can sell their asset because most franchise agreements have non competes in them, and so when you’re non-renewed that frequently means whatever you’ve been doing you can’t do anymore. And so not only are you going to lose the franchise relationship because it’s expired you’re going to lose the ability to continue to earn money doing the same thing you’ve always done even if you change the name and everything else. And so finding a way to allow our clients to continue doing what they’ve been doing for some period of time is something that we work on frequently and have lots of strategies to help make happen.