Delaware franchise termination law

Delaware's Franchise Security Law (6 Del. C. 2551 to 2557) covers only franchised distributors. It requires good cause and 90 days' notice.

Delaware's relationship statute is narrow. The Delaware Franchise Security Law, 6 Del. C. 2551 to 2557, protects "franchised distributors," not every business-format franchisee. A restaurant, fitness or service franchise may fall outside it. Whether yours does depends on what the statute's four categories say and what you actually do, and this page gives no verdict.

Who counts as a franchised distributor

6 Del. C. 2551 defines a franchised distributor as a person with a place of business in Delaware who is in the business of one of these:

  • buying or taking on consignment products that carry the manufacturer's trademark or trade name, mainly to sell to retail outlets;
  • selling through retail outlets products that bear the trademark or trade name of no more than 3 manufacturers, producers, publishers, trademark licensors or trade name licensors;
  • distributing publications, as the section words it;
  • operating a service station, filling station, store, garage or other place of business for selling motor fuel.

The International Franchise Association's notice chart reads 6 Del. C. 2555 the same way and says it applies to distributorships only. That is an industry association's description, not statute text.

Good cause, notice and renewal

6 Del. C. 2552 says termination is "unjust" if it is "without good cause or in bad faith." A failure to renew is unjust on the same basis. The sections read do not define good cause.

6 Del. C. 2555 sets the notice: "Notwithstanding any provision in a franchise agreement which provides otherwise, any termination of a franchise or election not to renew a franchise must be made on at least 90 days' notice." There is no cure period and no no-cure exception anywhere in 6 Del. C. 2551 to 2557. This page does not state one.

A contract term cannot get around the rule: "A provision in a franchise permitting a franchisor to make an unjust termination of a franchise is against the public policy of this State and shall not be enforced in the courts of this State." A parallel subsection covers unjust non-renewal. No general forum-selection or anti-waiver clause was found in these sections.

Remedies

6 Del. C. 2553 lets a covered distributor whose franchise is threatened recover damages and secure, in the Court of Chancery, an order enjoining termination or, for a failure to renew, a mandatory order for renewal. The listed damages include loss of goodwill, a fraction of assets, loss of profits "presumed to be no less than 5 times the profit" in the most recently completed fiscal year, and the reasonable counsel fees and expenses of the action. The section also allows relief while the case is pending.

Questions to look for in your own notice and agreement

  1. Which of the four categories in 6 Del. C. 2551 describes the business, if any?
  2. How many days separate the date of the notice from the termination or non-renewal date?
  3. Does the notice give a reason, and is it a reason the agreement itself recognizes?
  4. Does the agreement have its own cure or notice terms?

The notice and agreement control your own dates; a lawyer licensed in Delaware can advise. Related reading: can a franchisor terminate, states without relationship laws and state laws compared.

Where this came from

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