There has been a smothering dispute between Steak n’ Shake franchisor and franchisees. The dispute centers around Steak n’ Shake’s 4 dollar menu. In June, the Steak n’ Shake franchisor had a major victory. The case is Steak ‘n Shake Enters, Inc. v. Globex Co. The case is out of Colorado.
The 2 second elevator facts are this: Franchisee Globex adamantly opposed Steak ‘n Shake’s menu. When franchisee efforts to work with the franchise to end the 4 dollar menu, failed. Franchisee Globex printed secondary menus raising some 4 dollar items to 5.08. He reprogramed POS cash registers to allow al a carte pricing. He did not remove 4 dollar menu promotion items from the restaurant. He reduced the size of large beverage cups. When the franchisor discovered Franchisee Globex’s actions, the sent him a default notice and demanded that he stop. When Franchisee Globex did not stop, the Steak ‘n Shake Franchisor terminated Franchisee Globex and filed suit. Franchisee Globex filed counter claims.
This is not the first case involving Steak ‘n Shake’s $4 menu. But on this one, the Franchisor is looking to come out the winner. The Colorado court held that the franchise agreement language requiring the franchisee to comply with the ‘System’ including honoring and promoting the $4 menu, and franchisee’s failure to do so constituted a material breach warranting termination of the franchise agreement. The franchise agreement did not explicitly state price setting. Instead, the price setting requirement was boot strapped to the idea of the System.
It is common, if not universal, for franchise agreements to mandate compliance with the franchise ‘System’ standard. This case exemplifies the breath of the ‘System’ uniformity and compliance mandates.
As with every case there is an admonishment about not all courts reaching the same conclusion and differing outcomes based on difference facts. And, this case is no exception. The concept of the $4 and $1 menus has long been an area of dispute between franchisors and franchisees. It is unlikely that a simple conclusion that pricing is part of ‘System’ standards will settle the dispute.
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