Question

Doc’s Sports Club enters into a franchise agreement with Elite Fitness Centers that provides for termination at any time for “cause.” Doc’s fails to meet Elite’s “Friends and Family” membership sales quota. Is this a valid “cause” for termination? Explain your conclusion

Answer 1

Yes, a franchisee’s failure to meet a franchisor’s specified sales quota can be a sufficient cause for the franchisor’s termination of the franchise relationship. The parties to a franchise agreement determine what will constitute the grounds for a termination of their relationship, and set these bases out in their agreement. Here, the parties’ agreement specified a sales quota for the franchisee to meet. The agreement also provided that it could be terminated for “cause.”When the franchisee failed to satisfy the quota, it breached the franchise agreement. In other cases, if a franchisor is acting in good faith, “cause” may include any other breach of the franchise agreement, as well as the death or the disability of the franchisee, or the insolvency of the franchisee. Typically, in all cases, notice must be provided, and a franchisee must be given reasonable time to wind up the business.