It is important for franchisors and franchisees to have a clear understanding of how to terminate the franchise contract. Thankfully for both parties, there is some consistency among Franchise Registration states. Those states are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, Virginia, Washington, and Wisconsin. If you are a franchisor or franchisee in one of those states, consult the chart below to determine the termination requirements in your state.
- California state
- Hawaii state
- Illinois state
- Indiana state
- Maryland state
- Michigan state
- Minnesota state
- New York state
- North Dakota state
- Rhode Island state
- Virginia state
- Washington state
- Wisconsin state
California state
Applicable section
Cal Bus & Prof Code Div. 8, ch. 5.5
Termination provisions
Art. 3 §§20020-20022. Termination
- (§20020) Franchisor my only terminate for good cause. Good cause is defined as failure of franchisee to substantially comply with lawful requirements of the franchise agreement.
- Requires 60 days notice and reasonable opportunity to cure.
- The right to cure period cannot exceed 75 days unless otherwise outlined by a separate agreement that allows for the extension of time
- (§20021) Immediate termination without opportunity to cure is proper when:
- (a) Franchisee or business is the subject of an order for relief in bankruptcy, judicially determined to be insolvent, substantial assets are assigned to a creditor, franchisee admits inability to pay debts as they come due
- (b) Franchisee abandons the franchise by failing to operate the business for 5 days when it is required to be operating unless the failure to operate is to due to fire, flood, earthquake or a similar event, outside the franchisee’s control
- (c) Agreement in writing between franchisor and franchisee
- (d) Material misrepresentation or behavior that reflects poorly on the franchise
- (e) Franchisee fails to comply with federal, state, or local laws for 10 days after notification of noncompliance
- (f) Franchisee engages in the same noncompliance after curing the problem, even if the noncompliance is corrected
- (g) Repeated failure to comply with requirements of the franchise, irrespective of correction
- (h) The business is seized, taken over, or foreclosed upon by government official, creditor, etc
- (i) Franchisee is convicted of a felony or other criminal misconduct relevant to the operation of the franchise
- (j) Failure to pay fees or amounts due to the franchisor within 5 days of notice that they are overdue.
- (k) Franchisor makes reasonable determination that continued operation by franchisee would result in health/safety risks
Art. 5 §20030. Notices
Notices of termination or nonrenewal requires:
- (a) shall be in writing
- (b) shall be sent by certified mail, delivered by telegram, or personally delivered
- (c) shall contain a statement of intent to terminate along with (1) the reasons therefore, and (2) the effective date
Art. 6 §§ 20035-20037. Remedies
- (§20035) If franchisor terminates in violation of the chapter, franchisee is entitled to receive the fair market value of the business and franchise assets and any other damages. The court may grant preliminary injunctions for violations or threatened violations
- (§20037) Franchisee has the right to sue
Summary of state requirements
Franchisor may only terminate for good cause. Good cause is defined as failure of the franchisee to comply with lawful requirements of the franchise agreement. It requires 60 days notice and reasonable opportunity to cure.
A franchisor can terminate without operating an opportunity to cure under specific circumstances.
Notice is required in writing and must contain the reason for termination and effective dates.
Caselaw
Fight Club v. Omni Fight Club Franchising: the granted a summary judgement in favor of the franchisor that closure for 5+ days due to staffing issues was sufficient for immediate termination without opportunity to cure.
Vice v. State Farm Mut. Auto. Ins. Co: π sought declaratory action declaring the relationship between himself and State Farm to be that of a franchisor/franchisee, thus affording the protection the good cause requirements in the franchise termination laws.
Hawaii state
Applicable section
HRS §482E-6. Relationship between franchisor or subfranchisor and franchisee.
Termination provisions
(2)(H) It is considered unfair or deceptive practice or an unfair method of competition for a franchisor to terminate or refuse to renew a franchise except for good cause or in accordance with terms and standards established.
Good cause includes (but is not limited to) failure of franchisee to comply with any lawful, material provision of the franchise provision after having been given written notice and an opportunity to cure within a reasonable time.
Summary of state requirements
A franchise agreement may only be terminated for good cause. Good cause means any failure to comply with franchise agreement.
Good cause requires notice and opportunity to cure.
Illinois state
Applicable section
815 ILCS 705/19
Termination provisions
- Cannot terminate franchise except for good cause
- Good cause includes but is not limited to failure of franchisee to comply with lawful provisions of franchise agreement and to cure default after being given notice and reasonable opportunity to cure
- In the following situations, the notice and opportunity to cure are not required”
- Franchisee makes an assignment for the benefit of creditors or similarly disposes of assets of the business
- Franchisee voluntarily abandons the franchise
- Franchisee is convicted of a felony or other crime which substantially impairs the good will associated with the trademark, service mark, trade name, or commercial symbol
- Repeated failure to comply with lawful provisions of franchise agreement
Summary of state requirements
Termination requires good cause. Good cause includes but is not limited to failure to comply with lawful provisions of the franchise agreement.
Notice is not required in specific situations, including:
- Assignment of benefit to creditor or disposition of assets
- Voluntary abandonment
- Felony conviction which impacts the business
- Repeated failure to comply with franchise agreement
Caselaw
7-Eleven, Inc. v. Dar, 325 Ill. App. 3d 399:“the Act’s “good cause” termination requirement, found in section 19 ( 815 ILCS 705/19 (West 1998)), applies equally to the early termination of a fixed-term franchise and to any termination of a franchise for an [**522] [****833] indefinite period. Carl A. Haas Automobile Imports, Inc. v. Lola Cars Ltd., 933 F. Supp. 1381, 1393-94 (N.D. Ill. 1996).”
Indiana state
Applicable section
Burns Ind. Code Ann § 23-2-2.7-1
Termination provisions
It is unlawful for any franchise agreement to contain any of the following provisions:
(7) Provision permitting unilateral termination of franchise without good cause or in bad faith. Good cause includes any material violation of the franchise agreement.
(8) Provision permitting the прfranchisor to fail to renew a franchise without good cause or in bad faith. Does not prohibit franchise agreement from providing that agreement is not renewable if the franchise meets certain conditions specified in the agreement.
Summary of state requirements
Termination of a franchise agreement requires good faith. Good faith includes material violation of the franchise agreement.
A franchisor must have good faith cause to fail to renew franchise.
Caselaw
Hacienda Mexican Restaurant of Kalamazoo Corp. v. Hacienda Franchise Group, Inc. : Without determining if defaulting three times amounts to a material violation of the agreement, the court determined that a franchise agreement cannot be terminated without good cause and cited to Wright-Moore which clarified that termination due solely for internal economic reasons was not sufficient good cause.
Burns Ind. Code Ann. § 23-2-2.7-3
Termination provisions
Unless otherwise provided in the agreement, any termination of a franchise or election not to renew a franchise must be made on at least ninety (90) day’s notice.
Summary of state requirements
Termination requires 90 days notice.
Maryland state
Applicable section
No Statute.
Termination provisions
No Statute.
Michigan state
Applicable section
MCLS §445.1527
Termination provisions
(c) …a franchisor may not terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure.
Summary of state requirements
Termination requires good cause.
Good cause includes the franchisee’s failure to comply with the franchise agreement.
Franchisee must be given a written notice of failure and 30 day opportunity to cure.
Caselaw
Franchise Mgmt. Unlimited v. America’s Favorite Chicken, 221 Mich. App. 239 (1997): Court determined that denial of franchisees’ transfer of ownership of a franchise was proper because the franchisees were in default under the franchise agreement
Minnesota state
Applicable section
Minn. Stat. §80C.14
Termination provisions
Subd. 3. Termination or cancellation
- No person may terminate or cancel a franchise unless (i) that person has given written notice setting forth all the reasons for the termination or cancellation at least 90 days in advance of termination or cancellation, and (ii) the recipient of the notice fails to correct the reasons stated for termination or cancellation in the notice within 60 days of receipt of the notice; except that the notice is effective immediately upon receipt where the alleged grounds for termination or cancellation are:
- Voluntary abandonment of the franchise relationship by the franchisee;
- The conviction of the franchisee of an offense directly related to the business conducted pursuant to the franchise; or
- Failure to cure a default under the franchise agreement which materially impairs the good will associated with the franchisor’s trade name, trademark, service mark, logotype or other commercial symbol after the franchisee has received written notice to cure of at least 24 hours in advance thereof.
- No person may terminate or cancel a franchise except for good cause. “Good cause” means failure by the franchisee to substantially comply with the material and reasonable franchise requirements imposed by the franchisor including, but not limited to:
- The bankruptcy or insolvency of the franchisee;
- Assignment for the benefit of creditors or similar disposition of the assets of the franchise business;
- Voluntary abandonment of the franchise business;
- Conviction or a plea of guilty or no contest to a charge of violating any law relating to the franchise business; or
- Any act by or conduct of the franchisee which materially impairs the good will associated with the franchisor’s trademark, trade name, service mark, logotype or other commercial symbol.
Summary of state requirements
Termination or cancellation of a franchise requires: written notice including all the reasons for termination 90 days before termination, and the recipient fails to correct the issues within 60 days of receipt of the notice.
Notice is effective immediately when the alleged grounds for termination are:
- Voluntary abandonment
- Conviction of an offense directly related to the business
- failure to cure a default that materially impairs the good will associated with the franchise.
Must terminate for good cause, which means failure to substantially comply with the material and reasonable requirements imposed by the franchisor. Good will includes but is not limited to:
- bankruptcy
- assignment or disposition of assets
- voluntary abandonment
- conviction or guilty plea to a charge of violating law relating to the franchise business.
- Conduct by the franchisee which materially impairs the goodwill associated with the franchise.
Caselaw
In a store’s breach of contract claim against a franchisor for terminating the store’s franchise agreement without notice, the court found that the franchisor property terminated the franchise agreement when the franchisor submitted an affidavit containing evidence that the store’s mismanagement of funds and failure to pay taxes and debts had impaired the franchisor’s good will, and the store presented no evidence to create an issue of fact over this material. Video Update v. Malaske, 1994 Minn. App. LEXIS 937 (Minn. Ct. App. Sept. 27, 1994).
Sound of Music Co,. v. 3M, 477 F3d. 910 (7th Cir. 2007): court found that 12 months notice was more than sufficient
New York state
Applicable section
No Statute.
Termination provisions
No Statute.
North Dakota state
Applicable section
No Statute.
Termination provisions
No Statute.
Rhode Island state
Applicable section
R.I. Gen. Laws § 6-50-4.
Termination provisions
- (a) Notwithstanding the terms, provisions, or conditions of any agreement to the contrary, a grantor shall provide a dealer sixty (60) days prior, written notice of termination, cancellation, or nonrenewal. The notice shall state all the reasons for termination, cancellation, or nonrenewal and shall provide that the dealer has thirty (30) days in which to cure any claimed deficiency; provided that a dealer has a right to cure three (3) times in any twelve-month (12) period during the period of the dealership agreement. The sixty-day (60) notice provisions of this section shall not apply and the termination, cancellation, or nonrenewal may be made effective immediately upon written notice if the reason for termination, cancellation, or nonrenewal is in the event the dealer: (1) Voluntarily abandons the dealership relationship; (2) Is convicted of a felony offense related to the business conducted pursuant to the dealership; (3) Engages in any substantial act that tends to materially impair the goodwill of the grantor’s trade name, trademark, service mark, logotype, or other commercial symbol; (4) Makes a material misrepresentation of fact to the grantor relating to the dealership; (5) Attempts to transfer the dealership (or a portion thereof) without authorization of the grantor; or (6) Is insolvent, files, or suffers to be filed against it, any voluntary or involuntary bankruptcy petition or makes an assignment for the benefit of creditors or similar disposition of assets of the dealer business.
- (b) If the reason for termination, cancellation, or nonrenewal is nonpayment of sums due under the dealership, the dealers shall be entitled to written notice of such default and shall have ten (10) days in which to cure such default from the date of such notice. A dealer has the right to cure three (3) times in any twelve-month (12) period during the period of the dealership agreement.
- (c) If the reason for termination, cancellation, or nonrenewal is for violation of any law, regulation, or standard relating to public health or safety, the dealer shall be entitled to immediate, written notice and shall have twenty-four (24) hours to cure such violation.”
Summary of state requirements
Termination of a franchise is prohibited without “good cause”.
Good Cause means failure by the franchisee to comply with the reasonable requirements imposed by the franchisor or failure to cure deficiency after 30 days notice, three opportunities to cure within a 12 month period.
Immediate termination is allowed:
- Voluntary abandonment
- Franchisee is convicted of a felony offense related to the business
- Franchisee engages in acts that materially impair the goodwill of the name, trademark, service mark, logotype, or other commercial symbol
- Franchisor makes a material misrepresentation of facts to the franchisor relating to the business
- Franchisor attempts to transfer the franchise without authorization
- Franchisor is insolvent or files bankruptcy.
R.I. Gen. Laws § 6-50-2(4).
Termination provisions
§6-50-2(4): “(4) “Good cause” means, for the purposes of this act, good cause for terminating, canceling, or nonrenewal and shall include, but not be limited to, failure by the dealer to comply with the reasonable requirements imposed by the grantor or any of the reasons listed in § 6-50-4(a)(1) — (a)(6).”
Summary of state requirements
Franchisor must give 60 days notice of termination
Franchisee must have 30 days to cure
If the reason for termination is nonpayment, the franchisee must be given 10 days to cure
Virginia state
Applicable section
Va. Code Ann. § 13.1-564
Termination provisions
13.1-564: “it shall be unlawful for a franchisor to cancel a franchise without reasonable cause or to use undue influence to induce a franchisee to surrender any right given to him by any provision contained in the franchise.”
Summary of state requirements
A franchisor may not cancel a franchise without reasonable cause and may not induce or influence a franchisee to surrender any rights.
Caselaw
Betsy-Len Motor Hotel Corp. v. Holiday Inns, Inc., 238 Va. 489 (1989): A franchisor properly terminated a franchise agreement of limited duration without establishing statutory “reasonable cause”. Giving notice in strict conformance with the parties’ franchise agreement was not prohibited by the Retail Franchising Act.
Washington state
Applicable section
Wash. Rev. Code Ann. § 19.100.180(2)(j)
Termination provisions
“Terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include, without limitation, the failure of the franchisee to comply with lawful material provisions of the franchise or other agreement between the franchisor and the franchisee and to cure such default after being given written notice thereof and a reasonable opportunity, which in no event need be more than thirty days, to cure such default, or if such default cannot be reasonably cured within thirty days, the failure of the franchisee to initiate within thirty days substantial and continuing action to cure such default: PROVIDED, that after three willful and material breaches of the same term of the franchise agreement occurring within a twelve-month period, for which the franchisee has been given notice and an opportunity to cure as provided in this subsection, the franchisor may terminate the agreement upon any subsequent willful and material breach of the same term within the twelve-month period without providing notice or opportunity to cure: PROVIDED FURTHER, that a franchisor may terminate a franchise without giving prior notice, or opportunity to cure a default if the franchisee: (i) Is adjudicated a bankrupt or insolvent; (ii) makes an assignment for the benefit of creditors or similar disposition of the assets of the franchise business; (iii) voluntary abandons the franchise business; or (iv) is convicted of or pleads guilty or no contest to a charge of violating any law relating to the franchise business. Upon termination for good cause, the franchisor shall purchase from the franchisee at a fair market value at the time of termination, the franchisee’s inventory and supplies, exclusive of (i) personalized materials which have no value to the franchisor; (ii) inventory and supplies not reasonably required in the conduct of the franchise business; and (iii) if the franchisee is to retain control of the premises of the franchise business, any inventory and supplies not purchased from the franchisor or on his or her express requirement: PROVIDED, that a franchisor may offset against amounts owed to a franchisee under this subsection any amounts owed by such franchisee to the franchisor.
Summary of state requirements
Termination requires good cause.
Good cause includes:
- failure of the franchisee to comply with lawful requirements
- failure to cure default
- must give reasonable opportunity to cure and reasonable time to cure (need not be more than 30 days)
- Must cure within 30 days.
- Can cure without 30 day notice if
- The franchisee is bankrupt
- Franchisee assigns the assets of the franchise for the benefit of the creditors
- Franchisee voluntarily abandons franchise
- Franchisee is convicted of or pleads guilty to a charge of violating any law relating to the franchise business
Upon termination for good cause the franchisor shall buy back the franchise at fair market value all of the franchises inventory and supplies except:
- Personalized materials
- Inventory and supplies that are not reasonably within the conduct of the franchise business.
- Any inventory or supplies not purchased by the franchisor if the franchisee is to retain control of the premises.
Caselaw
Craig D. Corp. v. Atlantic-Richfield Co., 112 Wn 2d 574 (1993): Major changes petitioner made to respondent’s franchise agreements did not constitute nonrenewal/termination because respondents continued to run their business with the trade name and were not insulated against adverse economic change.
Wisconsin state
Applicable section
Wis. Stat. Ann. § 135.03
Wis. Stat. Ann. § 135.04
Termination provisions
§ 135.03. Cancellations and alteration of dealerships: “No grantor, directly or through any officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause. The burden of proving good cause is on the grantor.”
§ 135.02(4)
“(4) “Good cause” means:
- (a) Failure by a dealer to comply substantially with essential and reasonable requirements imposed upon the dealer by the grantor, or sought to be imposed by the grantor, which requirements are not discriminatory as compared with requirements imposed on other similarly situated dealers either by their terms or in the manner of their enforcement; or
- (b) Bad faith by the dealer in carrying out the terms of the dealership.
§ 135.04. Notice of termination or change in dealership: “Except as provided in this section, a grantor shall provide a dealer at least 90 days’ prior written notice of termination, cancellation, nonrenewal or substantial change in competitive circumstances. The notice shall state all the reasons for termination, cancellation, nonrenewal or substantial change in competitive circumstances and shall provide that the dealer has 60 days in which to rectify any claimed deficiency. If the deficiency is rectified within 60 days the notice shall be void. The notice provisions of this section shall not apply if the reason for termination, cancellation or nonrenewal is insolvency, the occurrence of an assignment for the benefit of creditors or bankruptcy. If the reason for termination, cancellation, nonrenewal or substantial change in competitive circumstances is nonpayment of sums due under the dealership, the dealer shall be entitled to written notice of such default, and shall have 10 days in which to remedy such default from the date of delivery or posting of such notice.”
Summary of state requirements
Franchisor much have good cause to terminate franchise agreement.
- Requires 90 day notice of termination and reasons for termination
- Must give franchisee 60 days to cure
- If the reason for termination is nonpayment – requires 10 days to cure
- No notice and cure period if the reason for termination is insolvency, an assignment for the benefit of the creditors, or bankruptcy.
Caselaw
Rossow Oil Co. v. Heiman, 72 Wis. 2d 696 (1976): Month-to-month tenancy of gas station was continuous tenancy for purpose of determining application of franchise protection statute. Dispute over alleged franchise agreement was collateral to tenancy and not a defense to eviction.
As you can probably see from the chart, generally a franchisor cannot terminate a franchise contract without good cause. This provides the franchisee some protection and gives the franchisor a bit of guidance as to when they are allowed to terminate. If you are a California or Idaho franchisor who is looking to terminate a franchise contract or a franchisee who believes your contract has been wrongly terminated, Fisher Hudson Shallat would be happy to discuss your case and advise you on how to move forward.
