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Enforcing post-termination obligations against former franchisees
June 25, 2004
John Previs, Esquire, Gretchen Jankowski, Esquire
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John Previs, Esquire

Gretchen Jankowski, Esquire


For most franchisors, fierce competition has caused brand identity and integrity to be critical to the success of their franchise. Enforcing post-termination obligations against former franchisees is one of the more significant ways of protecting a franchisor's brand identity and integrity. The secret to a franchisor's success is to ensure that enforcement of post-termination obligations occurs in a systematic and organized fashion. Some of the issues that franchisors with a successful track record in post-termination enforcement proceedings have effectively handled include:

IN THIS REPORT

Notification
Post-termination inspection
Preserving brand goodwill
Evidence of the franchisee's non-compliance
Complying with regulations
Considering legal issues
The separation of de-identification and disassociation issues from noncompetition issues
Are other franchisees watching?
Dealing with franchisee’s defenses
Narrowing the scope of post-termination obligations

Notification
The extent to which the franchisor has adequately notified the franchisee prior to termination that the noncompetition obligations begin upon termination.

Post-termination inspection
The extent to which a thorough post-termination physical inspection of franchised business and related website, review of local advertising and survey of franchisee's vendors has occurred.

Preserving brand goodwill
The extent to which franchisor has attempted to preserve its brand goodwill following termination such as by advertising locally for a substitute franchisee.

Evidence of the franchisee's non-compliance
The extent to which the franchisor has obtained demonstrative evidence of the franchisee's non-compliance with its post-termination obligations to de-identify and refrain from improper competition.

Complying with regulations
The extent to which the franchisor has complied with applicable regulations in connection with the sale and termination of the franchise.

Considering legal issues
The extent to which the franchisor, who is forced to resort to litigation, has considered legal issues such as jurisdictional and venue challenges that may delay or prevent the enforcement of post-termination obligations.

The separation of de-identification and disassociation issues from noncompetition issues
The extent to which the jurisdiction in which a franchisor is litigating post-termination obligations requires the separation of de-identification and disassociation issues from noncompetition issues.

Are other franchisees watching?
The extent to which other franchisees are watching the franchisor's conduct with respect to a particular ex-franchisee such that post-termination enforcement becomes even more critical.

Dealing with franchisee’s defenses
The extent to which the franchisor is prepared to deal with a franchisee's attempts to muddy the waters by raising a myriad of defenses such as the franchisor is simply trying to "put me out of business."

Narrowing the scope of post-termination obligations
The extent to which the franchisor has considered whether narrowing the scope of post-termination obligations is advisable or required under the circumstances.

Effectively dealing with these and other issues is often the key to a franchisor's success in the post-termination arena. Experience demonstrates that being proactive is often the difference between a favorable and an unfavorable result. With proper planning and the establishment of a consistent and systematic approach, franchisors have discovered that the enforcement of post-termination obligations can be an efficient and cost-effective way of protecting a franchisor's brand identity and integrity.

John Previs, Esquire, and Gretchen Jankowski, Esquire, are both lawyers at Buchanan Ingersoll PC (www.bipc.com).

 
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