What are the rights of the franchisee when facing termination by the franchisor?
Generally speaking, most operators of franchises and dealerships have an expectation that if they do the job, they’re going to be able to continue so long as they’re capable of performing. And they have a second expectation that if the franchisor or supplier thinks they aren’t doing the job, they’ll be told what they’re doing wrong, what they need to do to fix, and will be given a reasonable time to appropriately cure the perceived deficiency. From our perspective, that’s the way franchises dealerships should operate and that’s the typical expectation of the business people.
Sometimes, the writings are contrary to that – the written agreements in place. They don’t typically say terminable on 30 days notice, but occasionally they do. Even if the writing is bad and it purports to affect or allow the termination on notice without cause, statues are in place (for car dealers in essentially every state, for beer distributors in essentially every state, for quick service franchisees in 18 states) that say you may not terminate absent good cause and absent notice of deficiency and opportunity to cure. So we need to start with “what does the writing say?” in determination of a case, and then look beyond the writing if we need to for other statutes that may come in to play – could be antitrust statues as well, are there common law principles like Good Faith and Fair Dealing, or the fact that this relationship is modified by the conduct of the parties to permit termination only for cause, and then we look at the equities as to why we deserve to win and give, hopefully, the courts or arbitrators good legal reasons why they can rule in our favor and hopefully stop that.
In my dad’s case, for example, his writing said that he could be terminated as a beer distributor in 30 days notice with or without cause. Our argument was that writing had been modified by the conduct of the parties such that both parties understood he could, and would be, terminated only if he didn’t perform after being given notice of perceived deficiencies and opportunity to cure. There was a good case out of New Jersey that we cited that held exactly that, and we relied on that case to get my dad an injunction even though his writing was very bad for him.