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When Can a Franchisor Terminate a Franchise Contract?

State laws that regulate franchises generally provide that a franchisor, such as Burger King Corp., could not terminate a franchise contract with one of its branches unless it had "good cause"  to do so. What is meant by "good cause" tends to vary from state to state. There are a few basic circumstances in many of the states where a franchisor might have "good cause" to terminate a contract:

  • If the branch has done anything to materially breach the contract (e.g., not paying required fees)
  • If the branch has committed any kind of fraud on record
  • If the branch has done anything to the detriment of its customers
  • If the branch has filed for bankruptcy

If you are the owner of a franchise branch make sure to check the laws in your state for what situations qualify as good cause for terminating a franchise contract.

In addition, in many states not only must there be a qualifying circumstance, but canceling the franchise contract must be a reasonable remedy for dealing with that circumstance. For instance, it would be reasonable for Burger King to terminate a contract with one of its branches filing for bankruptcy if the purpose of termination is to avoid further financial losses. Again, justifiable reasons for terminating a franchise contract may vary, so check your state's laws.

Is Notice Required before Terminating the Franchise Contract?

Just about every state requires some type of notice to the branch before terminating the franchise contract. The notice usually has to be in writing, and may have to comply with other state laws that regulate what the notice must say, such as stating the reasons for termination of the contract.

What If the Franchisor Terminated the Franchise Contract without Good Cause?

If you feel your franchise contract has been terminated in a manner not compliant with the law, you should contact an attorney who has experience dealing with franchise contracts. Your attorney will be able to help understand which laws apply, what rights you have, and what would be the best course of action to pursue. 

Just about every state requires some type of notice to the branch before terminating the franchise contract. The notice usually has to be in writing, and may have to comply with other state laws that regulate what the notice must say, such as stating the reasons for termination of the contract. 

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 07-11-2014 04:05 PM PDT

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