Minneapolis franchisee lawyer Ron Gardner discusses rights for franchisees when the franchisor is drastically altering the franchise system.
More In This Category
One of the strange aspects of franchising as opposed to most other contractual relationships is that franchisors reserve for themselves the right to change almost everything from the day you sign the agreement. And they do that in the name of protecting the brand, they do that in the name of remaining competitively viable, that this is a long term relationship and so you’re going to need to give them flexibility to change things. Unfortunately, and thankfully, occasionally, not all the time, franchisors will just go way over the line. You’ll buy a burger joint and 10 years later they want you to run a car wash. I mean that’s an extreme example, but things like that can happen. And so, whether or not the franchisee has an ability to stop that or modify it in their own individual situation is going to turn on the language of the franchise agreement. It’s going to turn on the language of the state law that is in play. There are actually several state laws in their franchise laws and in all of the automobile dealer laws and construction equipment laws that say that a franchisor or a manufacturer cannot, quote, here’s the legal terms, substantially change the competitive circumstances of the franchisee without good cause.
And so, if you happen to be in one of those places you’re actually going to have a statutory ability to push back against these types of things. But it’s really a case by case basis. We’ve been very successful when there have been wholesale changes to a system and saying look, this isn’t what we signed up for. The contract you gave us isn’t reflective of this. This is a violation of the covenant of good faith and fair dealing. And so you can stop it but when and how much really depends on how far over the line they’ve gotten. So it depends, I mean there are some horror stories out there. The Mailboxes, Etc. was bought by the UPS Store, people who bought Mailboxes Etc. franchises were told if they wanted to renew they could sign a renewal agreement but that meant they had to no longer be Mailboxes Express or MBE or Mailboxes Etc. rather and they had to become the UPS Store. These are people who at the time they were buying their franchise chose to be Mailboxes and not UPS franchises and suddenly they were forced to be UPS Stores. And in that case the court said nope, that’s a fair renewal. It says right here in the agreement that you agree that they can change the trade name and that’s what they did. And so it’s going to depend on what your contract says, it’s going to depend on what state you’re in and what state law is going to apply.