When is a franchisor allowed to terminate a franchise? Why are termination-at-will clauses generally held to be void?
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Most franchise agreements permit a franchisor to terminate the franchise for cause. For example, the continued failure of a franchisee to pay franchise fees or meet legitimate quality-control standards would be deemed just cause. However, unreasonably strict application of a just cause termination clause constitutes wrongful termination. A single failure to meet a quality-control standard, for example, is not cause for termination.
Termination-at-will clauses in franchise agreements are generally held to be void on the grounds that they are unconscionable. The rationale for this position is that the franchisee has spent time, money, and effort developing the franchise. If a franchise is terminated without just cause, the franchisee can sue the franchisor for wrongful termination. The franchisee can recover damages caused by the unlawful termination and recover the franchise.
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