Does the Carls Jr. franchise agreement require CJR to consider alternative decisions or actions that may be preferable to the franchisee?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
If CJR does not exercise its right of first refusal pursuant to Section 18.J., the decision as to whether or not to consent to a proposed Transfer shall be made by CJR in its sole discretion and shall include numerous factors deemed relevant by CJR.
These factors may include, but will not be limited to, the following:
- (1) The proposed transferee (and if the proposed transferee is not a natural person, all persons that have any direct or indirect interest in the transferee as CJR may require) must demonstrate to CJR's satisfaction extensive experience in high quality restaurant operations of a character and complexity similar to Carl's Jr.
Restaurants; must meet the managerial, operational, experience, quality, character and business standards for a franchisee promulgated by CJR from time to time; must possess a good character, business reputation and credit rating; must have an organization whose management culture is compatible with CJR's management culture; and must have adequate financial resources and working capital, as determined by CJR in its sole discretion, to meet Franchisee's obligations under this Agreement.
- (2) If the Transfer is a sale, the sales price shall not be so high, in CJR's reasonable judgment, as to jeopardize the ability of the transferee to develop, maintain, operate and promote the Franchised Restaurant and meet financial obligations to CJR, third party suppliers and creditors.
CJR's decision with respect to a proposed Transfer shall not create any liability on the part of CJR: (a) to the transferee, if CJR consents to the Transfer and the transferee experiences financial difficulties; or (b) to Franchisee or the proposed transferee, if CJR withholds consent to the Transfer.
Source: Item 22 — CONTRACTS (FDD pages 75–76)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, the franchise agreement does not explicitly state that Carls Jr. must consider alternative decisions or actions that may be preferable to the franchisee. However, the document does outline certain situations where Carls Jr. has sole discretion in decision-making, such as in the approval of a transfer of ownership.
Specifically, when a franchisee proposes a transfer, Carls Jr. has the right to first refusal. If Carls Jr. chooses not to exercise this right, the decision to consent to the transfer is at Carls Jr.'s sole discretion, considering factors like the transferee's experience, financial resources, and compatibility with Carls Jr.'s management culture. The agreement stipulates that Carls Jr.'s decision regarding a transfer does not create any liability for Carls Jr., whether consenting to or withholding consent for the transfer.
Additionally, the franchisee is obligated to operate the restaurant at maximum capacity and efficiency, resolve customer complaints, and adhere to Carls Jr.'s standards. Carls Jr. also maintains the right to implement customer satisfaction programs and require the franchisee to participate, with the franchisee bearing the costs. These stipulations suggest that while franchisees must operate within the established system, there isn't a contractual obligation for Carls Jr. to prioritize decisions based on franchisee preference.
In summary, while the Carls Jr. franchise agreement does not require Carls Jr. to consider alternatives preferable to the franchisee, it does outline the obligations and expectations of the franchisee in adhering to the franchisor's standards and operational requirements. A prospective franchisee should discuss with Carls Jr. how these discretionary powers are typically exercised and under what circumstances Carls Jr. might be willing to consider a franchisee's perspective on operational decisions.