Under what circumstances might a Churchs Chicken franchisee be required to reimburse Cajun for inspection costs?
Churchs_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
- (5) If Franchisee desires to purchase any items (that Franchisee is not required to purchase from Cajun or a supplier designated by Cajun) from a supplier or distributor that Cajun has not previously approved, Franchisee shall submit to Cajun a request for approval, or shall request the supplier to seek approval.
Cajun may require, as a condition of its approval, that its representatives be permitted to inspect the supplier's or distributor'sfacilities and that samples from the supplier or distributor be delivered, at Cajun's option, either to Cajun or to an independent laboratory designated by Cajun for testing prior to granting approval.
Franchisee or the supplier or distributor must pay a charge to Cajun not to exceed Cajun's reasonable cost of inspection and the actual cost of testing.
Cajun may reinspect the facilities and products of any such approved supplier from time to time and revoke its approval upon failure of such supplier or distributor to continue to meet Cajun's criteria.
- (1) Cajun or its designee shall have the right at all reasonable times, both during and after the Initial Term or any Renewal Term, to inspect, copy and audit Franchisee's books, records, and federal, state and local tax returns, and such other forms, reports, information and data as Cajun reasonably may designate, applicable to the operation of the Franchised Restaurant.
If an inspection or audit discloses an understatement of Gross Sales, Franchisee shall pay to Cajun, within 10 days after receipt of the inspection or audit report, the deficiency in the Royalty Fees and advertising contributions, together with late payment fees applicable to late payments as specified in this Agreement.
If an inspection or audit is made necessary by Franchisee's failure to furnish reports or supporting records as required under this Agreement, or to furnish such reports, records or information on a timely basis, or if an understatement of Gross Sales for the period of any audit is determined by any audit or inspection to be greater than 2%, Franchisee also shall reimburse Cajun for the reasonable cost of the audit or inspection including, without limitation, the charges of attorneys and independent accountants, and the travel expenses, room, board and compensation of Cajun's employees or designees involved in the audit or inspection.
If Cajun's inspection or audit reveals an understatement of Gross Sales of the Franchised Restaurant for any period by 2% or more 3 or more times during any 18-month period, or by more than 5% on any 1 occasion, then in addition to Franchisee's obligations above, Cajun may immediately terminate this Agreement.
Source: Item 23 — RECEIPT (FDD pages 68–406)
What This Means (2025 FDD)
According to the 2025 Churchs Chicken Franchise Disclosure Document, a franchisee may have to reimburse Cajun for inspection costs under specific circumstances related to supplier approval and audits. If a franchisee wishes to use a supplier not already approved by Cajun, Cajun may require an inspection of the supplier's facilities and testing of samples. In this case, the franchisee is responsible for covering Cajun's reasonable costs of inspection and the actual cost of testing. This ensures that all suppliers meet Churchs Chicken's standards before their products are used in the restaurants.
Additionally, Churchs Chicken franchisees may be required to reimburse Cajun for audit costs if certain financial discrepancies are found. Specifically, if an audit is necessary because the franchisee failed to provide required reports or records on time, or if an audit reveals an understatement of Gross Sales greater than 2%, the franchisee must cover the reasonable costs of the audit. These costs can include charges from attorneys and independent accountants, as well as travel expenses, room, board, and compensation for Cajun's employees involved in the audit.
Furthermore, if audits reveal repeated understatements of Gross Sales, the consequences can be more severe. If an understatement of 2% or more occurs three or more times within an 18-month period, or if a single understatement exceeds 5%, Cajun may immediately terminate the franchise agreement. This provision underscores the importance of accurate financial reporting and compliance with the franchise agreement to avoid potential termination and financial penalties. These audit rights are in addition to all other remedies and rights available to Cajun under the agreement or applicable law.