Under numerous state laws, franchisees are entitled to notice prior to termination. The amount of the time varies by states. It could be 30, 60, or even 180 days.
Who owns the franchise business between when the franchisee is given notice, and the franchise business is terminated. That question was posed in the case of Charter Practices Int’l, LLC, and Med. Mgmt. Int’l, Inc. [Banfield] v. John M. Robb [Franchisee].
Banfield gave Franchisee notice of termination. Pursuant to Connecticut law, a 60-day notice was required and given. The Termination Notice stated that Banfield would assume the daily operations of the franchise business until the termination date. When questioned by the press, Banfield instructed personnel to state:
Dr. Robb no longer owns a Banfield hospital.
But, is that true? Who owns the franchise business post a notice of the termination, but prior to termination. The court’s decision turned on the expressed language in the franchise agreement.
The franchise agreement gave Banfield the right to step in and operate the franchise business in the event of default. However, this provision deemed that the franchise business would still be owned by the franchisee and the revenues derived from the franchise business during the franchisor’s operation accrued to the franchisee.
This deem of ownership is important. Franchisee, citing Connecticut’s Law requiring a 60-day notice of franchise termination, argued that Banfield’s takeover of the operation of the franchise business violated the Connecticut Law. Franchisee’s argument was rejected. Banfield gave Franchisee a 60-day notice of termination and Banfield’s exercising of step-in rights did not violate the Connecticut Law because the Franchisee still owned the franchise business during the step-in period. Banfield’s personnel press response was a misstatement and inaccurate.