Franchise termination

Franchise termination is when a franchisor 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, rather than federal law.

Contents 1 Franchise termination agreement documents 2 Franchise termination notice via franchise fraud 2.1 Franchise termination by threat of frivolous litigation 2.2 Franchise termination legal release 3 See also 4 External links 5 References 6 Further reading 6.1 Books and papers 6.2 Newspapers 6.3 Bibliography

Franchise termination agreement 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.

Franchise termination notice via franchise fraud

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 by threat of 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.

Franchise termination legal release

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 released from future payments, but is not released from the terms of the original franchise agreement and additional terms in the Franchise legal release.
• The franchisee "voluntarily" transfers 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 allows the churning franchise to avoid informing future franchisee prospects of the true failures of the franchise 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.
• Substantial fines and penalties if the former franchisee violates the Legal release and discusses the contents with anyone by violating the Gag order.
• The franchisee states that they signed the franchise legal release voluntarily, even if they had no financial means to legally dispute the frivolous claims.

See also

• Franchise Disclosure Document
• Franchise fraud
• Franchising
• Franchise agreement
• Censorship
• Chilling effect (law)
• Fear mongering
• The Franchise Rule
• Frivolous litigation
• Legal terrorism
• Legal threat
• SLAPP

External links

• [1] Common Fraud Schemes
• FTC Franchise FAQ Page
• Link to the text of the Franchise Rule contained within the Federal Register.^[1]
• FTC Franchise FAQ Page

References

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. 
• Purvin, Robert (2008). The Franchise Fraud: How to protect yourself before and after you invest (2008 ed.). John Wiley & Sons. p. 307. ISBN 9781419688621. 
• 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. http://www.businessweek.com/smallbiz/news/coladvice/book/bk991029.htm. 
• "Rules and Regulations" (PDF). Federal Register 72 (61): 15544–15575. 30 March 2007. http://www.ftc.gov/os/fedreg/2007/march/070330franchiserulefrnotice.pdf#page=102. 

Newspapers

• Mount, Ian (2008-02-29). "New franchise rule: More disclosure, same high risks". Fortune. http://money.cnn.com/2008/02/29/smbusiness/franchising.fsb/index.htm. 
• Mencimer, Stephanie (February 2009). "Franchise Fraud: Wake Up and Smell the Fine Print". MotherJones. http://motherjones.com/politics/2009/02/franchise-fraud-wake-and-smell-fine-print. 
• "Franchise Fraud: Hard to Swallow". MotherJones. February 2009. http://motherjones.com/politics/2009/02/franchise-fraud-hard-swallow. 
• "Report: Speedy Sign-A-Rama, USA". Ripoff Report. 2010-05-20. http://www.ripoffreport.com/Franchises/Speedy-Sign-A-Rama-U/sign-a-rama-speedy-sign-a-rama-2a266.htm. 

Bibliography

• Garner, W. Michael (2001). "Indiana". Franchise desk book: selected state laws, commentary and annotations (2nd ed.). American Bar Association. ISBN 9781570739729.