Can a franchisor terminate my franchise?

A franchisor can end a franchise only on the terms of the contract and any state or sector law that applies. This page sets out what the FTC rule does not do, what many states add, and the exceptions.

Yes, a franchisor can terminate a franchise, but the right to do so is limited by two sources: the franchise agreement, and in some states and industries, a statute. There is no single federal rule that says a franchisor needs a good reason. Whether a particular termination is permitted is a question for a lawyer licensed in your state who has read your agreement and your notice. This page sets out how the sources describe the general picture.

What federal law does and does not do

The FTC Franchise Rule is a pre-sale disclosure rule. Under 16 CFR 436.2 a franchisor must give a prospective franchisee its disclosure document at least 14 calendar days before the buyer signs a binding agreement or pays anything. In 2002 congressional testimony the FTC said the rule "does not, however, regulate the substance of the terms that control the relationship between franchisors and franchisees," and that "Franchise relationship issues are generally governed by the private contractual relationship between the franchisor and franchisee." That statement is old, but the current rule text is still a disclosure rule.

So the rule does not stop a termination. What it does is require that the disclosure document tell you the terms in advance. Item 17 is the table that summarizes renewal, termination, transfer and dispute resolution, with separate rows for termination with and without cause and for curable and non-curable defaults. The guide to the FTC Franchise Rule and termination explains the limits further. Separately, the U.S. Solicitor General told the Supreme Court in a brief that private judicial relief is not available for violations of the Franchise Rule. That is the government's litigation position, not a holding.

What the FTC guide says about grounds

The FTC's consumer guide says a franchisor "can end your franchise agreement for a variety of reasons, including your failure to pay royalties or abide by performance standards and sales restrictions." It adds that "Renewals are not automatic" and that the franchisor "may decline to renew or may offer a renewal that doesn't have the same terms and conditions." It also says "Some states have laws meant to protect franchisees after they buy," and points readers to the state attorney general, office of consumer affairs or state securities division.

State relationship laws

The International Franchise Association lists 20 jurisdictions that it says have franchise relationship laws, meaning statutes about the parties' rights during the relationship, as distinct from disclosure and registration laws. That is an industry association's list, not a government count. The states we read in statute text, and which require good cause or a similar standard, are California, New Jersey, Washington, Minnesota, Wisconsin, Illinois, Indiana, Iowa, Michigan, Hawaii, Connecticut, Delaware and Nebraska. Rhode Island's act defines good cause and sets notice and cure terms. The table in state franchise relationship laws sets out the figures and guide pages for each.

A good-cause requirement is not the same everywhere. California limits good cause to substantial non-compliance with the lawful requirements of the agreement, after notice of at least 60 days and a cure opportunity of at least 60 days. Washington's statute says terminating before the end of the term "except for good cause" is an unfair or deceptive act, and defines good cause to include failure to cure after written notice and a reasonable opportunity that need not be more than 30 days. Missouri, by contrast, has a 90-day written notice rule in RSMo 407.405 with no good-cause requirement in the text we read.

Not every state has such a law. We found no franchise relationship statute for ordinary franchises in the sources checked for Texas, Florida or New York, although the sources for those three rest mainly on an industry chart or on excerpts. In a state without one, the contract carries more of the weight. The guide on states without franchise relationship laws covers that case.

Exceptions inside the statutes

Even where a statute requires notice and cure, it usually lists events where neither is needed. Washington's lists bankruptcy or insolvency, assignment for creditors, voluntary abandonment, and a conviction or plea relating to the franchise business. California's immediate-termination list includes non-payment within five days of written notice that fees are overdue. Minnesota treats abandonment, a directly related conviction and one goodwill-damaging default as grounds where notice is effective on receipt. Which exception, if any, fits a given set of facts is for a lawyer to say.

The statutes also carry their own remedy provisions, which differ. Washington says a violation of its good-cause rule is an unfair or deceptive act, that a franchisee may sue for actual damages (which the court may increase up to three times in its discretion), and that the prevailing party may recover costs and a reasonable attorney's fee. California says a franchisee wrongly terminated or not renewed can recover the fair market value of the business and franchise assets and other damages, and that courts may grant preliminary and permanent injunctions. Neither provision tells you whether any particular termination breaches the statute; that depends on the facts and the agreement.

Fuel and auto dealer franchises

Two federal statutes cover narrow sectors. The Petroleum Marketing Practices Act applies to motor fuel franchises between a refiner or distributor and a retailer or distributor. It allows termination or non-renewal only on listed grounds and with notice of not less than 90 days, with an exception where 90 days would not be reasonable. The Automobile Dealer Day in Court Act lets an automobile dealer sue a manufacturer for failure to act in good faith in terminating, canceling or not renewing a franchise. Neither covers franchises in general. See petroleum franchises and the PMPA and the auto dealer Act.

For next steps on a notice you have received, see what to do after a notice of default. Your notice and your franchise agreement control your own dates.