Is Bombs Away allowed to require franchisees to consent to termination penalties in Minnesota?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
The Limitations of Claims section must comply with Minnesota Statutes, Section 80C.17, Subd. 5, and therefore the applicable provision of the Agreement is amended to state "No action may be commenced pursuant to Minnesota Statutes, Section 80C.17 more than three years after the cause of action accrues."
14.5 Liquidated Damages. If Bombs Away Franchising terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.1), then within 10 days thereafter Franchisee shall pay to Bombs Away Franchising a lump sum (as liquidated damages and not as a penalty) calculated as follows: (x) the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising under this Agreement for the 12-month period preceding the date on which Franchisee ceased operating the Business; multiplied by (y) the lesser of (1) 24 or (2) the number of months remaining in the then-current term of this Agreement.
If Franchisee had not operated the Business for at least 12 months, then (x) will equal the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising during the period that Franchisee operated the Business.
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the franchise agreement contains provisions regarding termination and associated financial implications. Specifically, if Bombs Away terminates the agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause, the franchisee may be required to pay liquidated damages. These damages are not considered a penalty but rather a lump sum payment.
The liquidated damages are calculated based on the average Royalty Fees and Marketing Fund Contributions owed by the franchisee to Bombs Away over a specified period. This average is then multiplied by the lesser of 24 or the number of months remaining in the agreement's term. If the franchisee has operated the business for less than 12 months, the calculation uses the average Royalty Fees and Marketing Fund Contributions owed during the actual period of operation.
For prospective Bombs Away franchisees in Minnesota, it's important to note that the FDD includes a Minnesota-specific clause addressing limitations on claims. This clause states that any action pursuant to Minnesota Statutes, Section 80C.17, must be commenced within three years after the cause of action accrues. While the FDD does not explicitly state that Bombs Away cannot require franchisees to consent to termination penalties, the Minnesota rules cited suggest franchisees should be aware of their rights and protections under Minnesota law regarding franchise agreements and potential penalties.