The franchising concept, as it is known today, is a relatively new idea. Some historians trace franchise or licensing agreements as far back as 200 BC in ancient China, but franchising similar to today’s models can only be traced back to the mid-1800s. In the United States, franchising did not gain popularity until the 1950s. Three well-known U.S. examples include Isaac Singer with his sewing machine, Western Union with its telegraph system, and John Pemberton with Coca-Cola. This timeline—specifically, the fact that franchising is a relatively new concept—may account for what some consider the disjointed system of law behind franchising in the United States.
In franchising, the most significant event is termination—the end of a franchise before the specified contract term has lapsed. Typically, the franchisor invokes a breach of the franchise contract and, if there is a dispute, it is the franchisee that seeks to contest the termination. There are about 3,000 franchise systems in the United States, and thousands of terminations have been contested in court. To examine closely the public policy implications of franchise terminations, two questions must be explored: (1) What is the law in this area? and (2) Does the law, as it is expressed, match the actions taken in court? The statistical analyses that follow will demonstrate the trends and outcomes of termination cases for the past few decades.
This Study primarily concerns the requirement of good cause for termination of a franchise contract—when it applies and how it is defined. The statistical studies that follow analyze the varying bases upon which courts have anchored their decisions regarding the termination of a franchise agreement. With that analysis, legal reforms can follow. These reforms, in view of historical developments in franchise law, should consider bargaining disparities between contracting parties as well as a need for uniform laws. Specifically, uniformity should be brought to the key concept of termination: “good cause.”
