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"Good Cause" Termination of a Franchise

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.

Failure to Meet Sales and Other Requirements

Another good cause for the termination of a franchise is the failure to meet performance standards.

In fact, franchises have been terminated for the failure to meet performance standards when:

  • A dealer failed to meet reasonable sales goals;
  • A dealer became insolvent;
  • A dealer became unprofitable;
  • A franchisee failed to sell in its entire territory, as required under the franchise agreement; and
  • A franchisee intentionally underpaid its royalties.

If you have sold a franchise in New York, and you need to know whether a failure to meet performance standards may allow the termination of a franchise, then you can have a New York franchise lawyer review your franchise relationship. If termination is possible, then you will have to follow procedural requirements to terminate the franchise.

Procedural Requirements for the Termination of a Franchise in New York

If it is determined that a franchisor has good cause for the termination of a franchise, then the franchisor must comply with the procedural requirements for termination.

These procedural requirements include:

  • Giving an advance written notice of the termination in the required amount of time;
  • Including in the notice all of the reasons for termination;
  • Including in the notice how much time the franchisee has to cure the default; and
  • Continuing to comply with the franchisor's obligations throughout the notification period.

Those procedural requirements will depend on the state in which the franchise agreement was made. Different states will have different time requirements for the notice of termination, as well as the minimum periods to cure the default. To understand the procedural requirements for the termination of a franchise in New York, you should speak to a New York franchise lawyer who has experience in the proper procedures for ending a franchise relationship.

Contacting a New York Franchise Lawyer

If you are an entrepreneur who is interested in franchising your business there is a lot you need to know, including the significance of evaluating your trademark and how to approach the preparation of your FDD.

Contact us today at (800) 976-4904 for more information about Mr. Internicola's franchise law services in New York and how he assists entrepreneurs franchise their business nationwide.

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