Under what conditions is it unlawful for Chicken Guy to repurchase a franchisee's business during the term of the franchise agreement?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
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- Prohibitions on Communicating with Regulators. Any provision in the franchise agreement or related agreements that prohibits the franchisee from communicating with or complaining to regulators is inconsistent with the express instructions in the Franchise Disclosure Document and is unlawful under RCW 19.100.180(2)(h).
- (h) A provision that requires the franchisee to resell to the franchisor items that are not uniquely identified with the franchisor.
This subdivision does not prohibit a provision that grants to a franchisor a right of first refusal to purchase the assets of a franchisee on the same terms and conditions as a bona fide third party willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor the right to acquire the assets of a franchisee for the market or appraised value of such assets if the franchisee has breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner provided in subdivision (c).
California Business and Professions Code Sections 20000 through 20043 provide rights to you concerning transfer, termination or non-renewal of the franchise and development agreements. If the agreements contain a provision that is inconsistent with the law, the law will control.
The franchise and development agreements provide for termination upon bankruptcy. These provisions may not be enforceable under federal bankruptcy law (11 U.S.C.A. § 101, et seq.).
The franchise and development agreements provide for application of the laws of Florida. This provision may not be enforceable under California law.
The franchise and development agreements contain a choice of forum provision. This provision may not be enforceable under California law.
The franchise and development agreements contain a covenant not to compete that extends beyond the termination of the franchise. These provisions may not be enforceable under California law.
The franchise and development agreements contain liquidated damages clauses. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
You must sign a general release upon execution of the franchise and development agreements, if you transfer the rights granted under those agreements and if you renew your franchise under the franchise agreement. These provisions may not be enforceable under California law. California Corporations Code Section 31512 voids a waiver of your rights under the Franchise Investment Law (California Corporations Code Sections 31000 through 31516). Business and Professions Code Section 21000 voids a waiver of your rights under the Franchise Relations Act (Business and Professions Code Sections 20000 through 20043).
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 40–46)
What This Means (2025 FDD)
According to the 2025 Chicken Guy FDD, several state-specific regulations outline circumstances where certain franchise agreement provisions, including those related to the repurchase of a franchisee's business, may be deemed unlawful or unenforceable.
In Washington, any provisions within the franchise agreement that restrict a franchisee from communicating with or lodging complaints to regulators are considered unlawful under RCW 19.100.180(2)(h). Similarly, any clauses that require a franchisee to resell items to Chicken Guy that are not uniquely identified with the franchisor are prohibited. However, this does not prevent Chicken Guy from having the first right of refusal to buy the franchisee's assets if a third party makes a legitimate offer or from acquiring the assets at market or appraised value if the franchisee breaches the agreement and fails to correct the breach.
In California, several provisions within Chicken Guy's franchise and development agreements may not be enforceable under California law. These include clauses related to termination upon bankruptcy, the application of Florida laws, choice of forum, covenants not to compete extending beyond the franchise term, and certain liquidated damages clauses. Additionally, California Corporations Code Section 31512 and Business and Professions Code Section 21000 void any waiver of rights under the Franchise Investment Law and the Franchise Relations Act, respectively, which means that Chicken Guy cannot enforce a franchisee's waiver of these rights.