Franchise termination is when a franchisor or a franchisee terminate a franchise business license

Business license

Business licenses are permits issued by government agencies that allow individuals or companies to conduct business within the government's geographical jurisdiction. It is the authorization to start a business issued by the local government....

.

The United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 Federal Trade Commission

Federal Trade Commission

The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...

 administrates oversight of preinvestment franchise disclusures via The Franchise Rule.

Franchise agreement

Franchise agreement

A Franchise Agreement is a legal, binding contract between a franchisor and franchisee, enforced in the United States at the State level.Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule...

s are regulated in the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 under state law, rather than federal law.

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

Franchise fraud

Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme.- Franchise fraud in U.S. federal law :The FBI website states:...

 will typically use a franchise termination process that was not disclosed in the Franchise agreement

Franchise agreement

A Franchise Agreement is a legal, binding contract between a franchisor and franchisee, enforced in the United States at the State level.Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule...

, Uniform Franchise Offering Circular, or Franchise Disclosure Document. A churning franchise practicing Franchise fraud 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

Frivolous litigation

In law, frivolous litigation is the practice of starting or carrying on law suits that, due to their lack of legal merit, have little to no chance of being won. The term does not include cases that may be lost due to other matters not related to legal merit...

, and a Legal release

Legal release

A legal release is a legal instrument that acts to terminate any legal liability between the releasor and the releasee, signed by the releasor. A release may also be made orally in some circumstances...

 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
  Gag order
  A gag order is an order, sometimes a legal order by a court or government, other times a private order by an employer or other institution, restricting information or comment from being made public.Gag orders are often used against participants involved in a lawsuit or criminal trial...
  
  .
• 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
  Federal Trade Commission
  The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
  
   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
  Franchise fraud
  Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme.- Franchise fraud in U.S. federal law :The FBI website states:...
  
  
• Franchising
  Franchising
  Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
  
  
• Franchise agreement
  Franchise agreement
  A Franchise Agreement is a legal, binding contract between a franchisor and franchisee, enforced in the United States at the State level.Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule...
  
  
• Censorship
  Censorship
  thumb|[[Book burning]] following the [[1973 Chilean coup d'état|1973 coup]] that installed the [[Military government of Chile |Pinochet regime]] in Chile...
  
  
• Chilling effect (law)
• Fear mongering
  Fear mongering
  Fear mongering is the use of fear to influence the opinions and actions of others towards some specific end...
  
  
• The Franchise Rule
• Frivolous litigation
  Frivolous litigation
  In law, frivolous litigation is the practice of starting or carrying on law suits that, due to their lack of legal merit, have little to no chance of being won. The term does not include cases that may be lost due to other matters not related to legal merit...
  
  
• Legal terrorism
• Legal threat
  Legal threat
  A legal threat is a statement by a party that it intends to take legal action on another party, generally accompanied by a demand that the other party take an action demanded by the first party or refrain from taking or continuing actions objected to by the demanding party.-Nature of legal...
  
  
• SLAPP

External links

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