Is Cream permitted to include liquidated damages clauses in its Area Development Agreement under Minnesota law?

According to Cream's 2025 Franchise Disclosure Document, Minnesota law impacts the enforceability of certain clauses in the Area Development Agreement for franchises operating in Minnesota. Specifically, Minn. Stat. Sec. 80C.21 and Minn. Rule 2860.4400J explicitly prohibit Cream from requiring an Area Developer or franchisee to consent to liquidated damages. This means that Cream cannot include clauses in its Area Development Agreement that would force a franchisee to agree to pre-determined damage amounts in the event of a breach of contract.

This prohibition is designed to protect franchisees in Minnesota from potentially unfair or excessive penalties. Liquidated damages clauses can sometimes be used by franchisors to extract large sums of money from franchisees, even if the actual damages suffered by the franchisor are much smaller. By preventing Cream from including these clauses, Minnesota law ensures that any damages assessed against a franchisee will be determined by a court based on the actual harm caused.

Furthermore, the FDD states that nothing in the disclosure document, Area Development Agreement, or Franchise Agreement can reduce any Area Developer's or Franchisee's rights as provided for in Minnesota Statutes, Chapter 80C, or their rights to any procedure, forum, or remedies provided for by the laws of the jurisdiction. This reinforces the protection afforded to Cream franchisees under Minnesota law, ensuring that their legal rights and remedies remain intact and cannot be undermined by contractual terms.

Prospective Cream franchisees in Minnesota should be aware of these protections and carefully review their Area Development Agreement and Franchise Agreement to ensure compliance with Minnesota law. They should also consult with an attorney to fully understand their rights and obligations under the agreements.