Is a 1-800-GOT-JUNK? franchisee allowed to set-off payments due to the franchisor based on alleged non-performance?
1_800_Got_Junk Franchise · 2025 FDDAnswer from 2025 FDD Document
23.3 No Set-Off. Franchisee shall not, by way of set-off or otherwise, whether on the grounds of the alleged non-performance by Franchisor of any of Franchisor’s obligations hereunder, or otherwise, withhold payment of any amount due to Franchisor or any of its Affiliates, whether on account of supplies or other products or services purchased by Franchisee, Royalties, Minimum Royalties, Sales, Marketing and Technology Fee or otherwise, except to the extent that Franchisee has recovered an arbitral award against Franchisor pursuant to Section 23.14 and then only for the amount of the award so recovered.
Source: Item 22 — Contracts (FDD page 24)
What This Means (2025 FDD)
According to the 2025 1-800-GOT-JUNK? Franchise Disclosure Document, a franchisee is generally prohibited from withholding payments due to 1-800-GOT-JUNK? or its affiliates, even if the franchisee alleges non-performance by the franchisor. This restriction applies to all amounts owed, including royalties, minimum royalties, sales, marketing and technology fees, and purchases of supplies, products, or services. This means a franchisee cannot deduct any amount they believe is owed to them from their payments to 1-800-GOT-JUNK?.
However, there is an exception to this rule. A 1-800-GOT-JUNK? franchisee may set off payments if they have obtained a favorable arbitral award against the franchisor. In this case, the franchisee can withhold payment up to the amount of the award they recovered through arbitration. This is the only circumstance under which a franchisee is explicitly permitted to set off payments.
This "no set-off" clause is a fairly standard provision in franchise agreements. It aims to ensure a consistent revenue stream for the franchisor, preventing disputes over performance from disrupting payments. Franchisees need to be aware of this restriction and understand that they cannot unilaterally withhold payments, even if they believe 1-800-GOT-JUNK? is in breach of the agreement. The primary recourse for a franchisee in such a situation would be to pursue arbitration and obtain an award that could then be used as a set-off.