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Franchise termination

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Franchise termination is when a franchisor and/or a franchisee terminate a franchise business license.

The United States Federal Trade Commission administrates oversight of preinvestment franchise disclusures via The Franchise Rule. [1]

Franchise agreements are regulated in the United States under state law.

Franchise termination documents

Clauses in the franchise agreement will stipulate grounds for termination, remedies against termination, and the process by either the franchisee or franchisor to start termination.

A franchisor that is practicing Franchise fraud will typically use a franchise termination process that was not disclosed in the Franchise agreement, Uniform Franchise Offering Circular, or Franchise Disclosure Document. [2][3] A churning franchise practicing Franchise fraud [4] can have a franchise termination process that includes:

  • In the franchise agreement, specifying that contract disputes be settled by binding arbitration, away from the franchisees home state, which increases costs to the franchisee.
  • Waiting until the franchisee reports they are in financial distress, which informs the franchisor that the franchisee does not have the funds to hire a lawyer.
  • Demanding the failed franchisee pay up all unpaid royalties, fee, and penalties, prior to being issued the franchise termination documents from the franchisor. Unpaid royalties and fees continue to accrue until the franchise termination agreement is signed.


Franchise termination frivolous litigation

Franchise termination documents can include two sets of documents; threat of Frivolous litigation, and a Legal release document.

The frivolous litigation threat can include claims of unpaid royalties, such as computer license fees, and unpaid future royalties and fees, which were not specified, or agreed to, in the original franchise agreement.

The Legal release used by a churning franchise can contain clauses such as

  • The franchisee agrees to the unpaid, and not previously discussed or agreed sums that were listed in the Frivolous litigation letter.
  • The franchisee and all existing and future family members are bound by the Legal release in essentially a Gag order.
  • The franchisee is release from payments, but is not released from the terms of the original franchise agreement and additional terms in the Franchise legal release.

dispute the termination.

  • The franchisee "volunjtarily" tranfers the failed franchise back to the franchisor, which allows the franchosor to avoid reporting the failed franchise statistics to the Federal Trade Commission in the UFOC or FDD, and avoids informing future prospects of the true failures of the fracnhise concept.
  • The franchisee cannot contact any former, current, or future franchisees to discuss the franchise termination process.
  • A script as to what the former franchisee is only allowed to say to any prospective franchisee who contact them from a UFOC or FDD document.
  • Fines and penalties if the former franchisee violates the Legal release and discusses the contents with anyone.
  • The franchisee states that they signed the franchise legal release voluntarily, even if they had no financial means to legally

See also

References

  1. ^ http://www.ftc.gov/os/fedreg/2007/march/070330franchiserulefrnotice.pdf#page=102
  2. ^ Franchise and Business Opportunities | BCP Business Center. Business.ftc.gov. Retrieved on 2010-12-06.
  3. ^ FTC Issues Updated Franchise Rule. Ftc.gov. Retrieved on 2010-12-06.
  4. ^ FBI — Common Fraud Schemes. Fbi.gov. Retrieved on 2010-12-06.

Further reading

Books and papers

  • Bertrand, Marsha (1999). Fraud! How to Protect Yourself from Schemes, Scams, and Swindles (1999 ed.). Amcom American Management Association. p. 307. ISBN 9780814470329. {{cite book}}: Invalid |ref=harv (help)
  • Purvin, Robert (2008). The Franchise Fraud: How to protect yourself before and after you invest (2008 ed.). John Wiley & Sons. p. 307. ISBN 9781419688621. {{cite book}}: Invalid |ref=harv (help); Unknown parameter |isbn10= ignored (help)
  • Bertrand, Marsha (2000). "Have I Got a Franchise for You! Be Your Own Boss, Easy Money...". Fraud! How to Protect Yourself from Schemes, Scams, and Swindles. AMACOM. ISBN 9780814470329. {{cite book}}: External link in |chapterurl= (help); Invalid |ref=harv (help); Unknown parameter |chapterurl= ignored (|chapter-url= suggested) (help); Unknown parameter |isbn10= ignored (help)
  • "Rules and Regulations" (PDF). Federal Register. 72 (61): 15544–15575. 30 March 2007.{{cite journal}}: CS1 maint: date and year (link)

Newspapers

Bibliography

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