"Good Cause" Termination of a Franchise (Part A)

If you have sold a franchise in New York, and you are considering terminating your franchise agreement, then franchise relationship laws may require "good cause" for you to do so. Good cause may be a failure by the franchisee to substantially comply with the requirements imposed by the franchisor (in this case, you).

In New York; however, a failure to substantially comply is just one example of good cause for the termination of a franchise.

Some other examples of good cause that can lead to the termination of a franchise include:

• damage to the franchisor's reputation;
• the sale of competing products; and
• failure to maintain standards or sales requirements.

If you have questions about good cause and the termination of a franchise, you can seek advice from a New York franchise lawyer to make sure that you comply with protocol to terminate a franchise.

Damage to the Franchisor's Reputation

Exceptionally bad behavior by a franchisee, which tarnishes a brand's reputation, will sometimes justify the termination of a franchise. In one state, termination was granted after a franchisee had engaged in consumer fraud. In another example, the termination of a franchise was granted when a franchisee pled no contest to a felony. One court found good cause for termination when a franchisee sold competing and unauthorized products under the franchisor's trademark.

The Sale of Competing Products

A commercial conflict such as the sale of competing products may justify the termination of a franchise in New York. It may not justify termination if the distributorship agreement does not require exclusive dealing. To be sure, you'll need to access your original disclosure documents signed by the franchisee.

A Failure to Maintain Standards

Any breach of material contract requirements may be good cause for the termination of a franchise. For example, an Illinois court found McDonald's to have good cause to terminate a franchise when a franchisee failed to maintain the required standards of cleanliness, quality and service in a McDonald's restaurant.

Another franchisor was found to have good cause when a franchisee failed to execute a renewal lease, requiring additional rent for the possible installation of environmental control equipment.

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