Terminated Franchisee

[raz0rlite]

Hi

I have been a franchisee with a company of the last 5 years. It was a small company, flexible with great service and support levels. They recently sold out to a larger company, who immediately increased their prices and provided no customer support (let alone training in their specific products).

I've muddled along and put up with it as it's not my only source of income. However out of the blue yesterday I reveived a letter saying that my contract had been terminated as I don't meet the minimum levels of business required in my contract.

This means that the 'soft income' which I have built up by signing up regular customers will cease.

I haven't done the minimum levels of business for the last 3 years but it was never a problem to the old owner as I did regular business and didn't cost them anything (as we pay per job). I believe that this new company is terminating franchisees (there's been a few received the same letter) so they can keep all the regular income and not pay a slice away.

I am not that bothered about working with this new company moving forward as I don't like their tactics and business ethics, but I am pretty fed up about my soft income (about £1500 per annum). I wouldn't have minded so much if they had rung me to discuss my plans moving forward and give me the opportunity to increase my business levels but to just send a letter with no dialogue has really wound me up.

I understand that my contract states minimum levels of business, however as I have not done this for the last 3 years, has this created a 'working practice' or an 'implied contract' which I can argue should be observed moving forward?

I'd like to tell them I'm taking legal advice but not unless I think I have a case

Thoughts would be appreciated.

 

[kulture]

Read the contract. What does it say. If it gives them an option to terminate if you do not achieve a certain level and they have now chosen to exercise that option, then it is unlikely that you have a case.

It is all in the wording of the contract.

 

[Vending Siting Services]

I would agree with Kulture as well. The devil is in the detail I am afraid and you have agreed to those rules/conditions by signing the Franchise Contract/Agreement.

Is there no way that you can carry on with your 'passive income' without your Franchisor?

Barbara

 

[raz0rlite]

Thank you for your replies.

My contract does say that I have to deliver certain levels of income per annum but as I've not been achieving them in previous years I thought that 'working practice' might override the contract?!

To transfer the customers over who pay a regular income I'll need to find another supplier which is easy enough but I also have a clause in my contract that says I can't go elsewhere for a year which I bet they'll invoke if I try and take them away!

 

[The Resolver]

Before you do what is asked, you should check what levers you have available to negotiate a 'goodbye'- if not golden then any cheque may be better than nothing. Whilst franchise contracts are usually drawn heavily against the franchisee (I have acted both for franchisors in drawing up agreements and franchisees in challenging them) it is rare that there is not some financial and/or commercial advantage you can give them in return for some financial incentive from them to leave without challenge.

I practice 'interest based mediation' which unlike with traditional mediation does not just look at the legal rights and wrongs and who would likely win in court, but mainly goes beyond that to try to identify the various competing interests of each party at a practical level and ,in particular, what disadvantages are avoided and advantages created, by reaching a settlement.

In your case, and without knowing any more than what you have written, you may well have an argument of sorts to say there had been a variation of the agreement at some time in the past when you renewed with the agreement by the then franchisor that your targets were reduced. This may not be enough to justify pursuing legal action all the way to try to prevent the termination but may be sufficient to create a cost and damage to the present franchisors in defending against your claim . Now issuing in court is high stakes and of course the income you make does not justify court proceedings but the delay involved by your setting out a case may cause them additional losses in delaying their plans for growth in your territory. Of course if other franshisees have also been underperforming then you may threaten their interest in others not following your attacking stance.

If they are members of the BFA then you may also be able to establish that they have breached the Code of Ethics (essentially an extension of the European Code) sufficient to justify a complaint to the BFA. After all , while you may have been underperforming mwould it not be reasonable and more sensible for them to try to help you improve and give you a chance under the new regime rather than just kicking you out? In fact they would seem to be in breach of 2.4 of the Code in not acting fairly and at least attempting to help you overcome the underperforming (especially given the implicit acceptance by the previous franchisors).

They also need to understand the risk in the internet age of adverse publicity from any lawful reporting by you online of these events.

On the positive side of the equation you may well be able to offer some gains to them with knowledge of your territory, customer loyalty etc that can benefit them if the handover is under agreement. Also they may be persuaded that it will save them money by assisting you to improve and stay rather than the delay and cost to them in finding a replacement for the territory.

Think about the above and draw up a list of the gains and losses avoided for them in reaching an agreement with you (whether you stay or go. If you wish I can put some meat on the above by drawing up a Mediation Assessment report of the potential for negotiating a better outcome than just an immediate withdrawal such as I might do if acting as mediator in this dispute.