What is the effect of the 'Waiver of Punitive Damages' clause in the Alloy franchise agreement?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
- **K.
Waiver of Punitive Damages.
You and your affiliates and us and our affiliates agree to waive, to the fullest extent permitted by law, the right to or claim for any punitive or exemplary damages against the other and agree that in the event of any dispute between them, each will be limited to the recovery of actual damages sustained.**
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, the franchise agreement contains a 'Waiver of Punitive Damages' clause. This clause means that both Alloy and the franchisee agree to waive their rights to claim punitive or exemplary damages against each other in the event of a dispute. Instead, both parties are limited to recovering only the actual damages they sustained. This waiver is applicable to the franchisee, their affiliates, Alloy, and its affiliates.
For a prospective Alloy franchisee, this means that if Alloy breaches the franchise agreement or otherwise causes harm to the franchisee's business, the franchisee can only recover the direct financial losses they incurred. They cannot seek additional damages intended to punish Alloy for its conduct. This could be a significant limitation in cases where Alloy's actions are particularly egregious or harmful, as punitive damages are often awarded to deter similar behavior in the future.
However, the enforceability of this waiver may vary by state. For example, the California Addendum to the FDD indicates that the waiver of punitive damages may not be enforceable under California law. Similarly, in Washington, provisions requiring franchisees to waive exemplary, punitive, or similar damages are void, except when executed pursuant to a negotiated settlement after the agreement is in effect and where the parties are represented by independent counsel, in accordance with RCW 19.100.220(2). Therefore, franchisees should consult with an attorney to understand the specific implications of this clause in their state.
The inclusion of a waiver of punitive damages is not uncommon in franchise agreements, as franchisors often seek to limit their potential liability. However, franchisees should carefully consider the potential impact of this clause and negotiate its terms if possible. It is important to understand the extent to which this waiver may limit their ability to seek full compensation in the event of a dispute with Alloy.