Does the Degree Wellness Franchise Agreement contain a liquidated damages clause, and are such clauses always enforceable under California Civil Code Section 1671?
Degree_Wellness Franchise · 2025 FDDAnswer from 2025 FDD Document
- (vii) The Franchise Agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
You agree that precise damages are difficult to calculate for a breach or violation of the provisions of Section 9 of this Agreement. Therefore, if you breach or violate Section 9 of this Agreement it is agreed that we would suffer actual damages of at least Fifty Thousand Dollars. In addition to any liquidated damages permitted herein, you must pay to us any and all actual damages in excess of the liquidated amount, plus all attorneys' fees incurred by us as a direct or indirect result of any breach or violation of this Agreement.
Source: Item 23 — Receipts (FDD pages 66–257)
What This Means (2025 FDD)
According to Degree Wellness's 2025 Franchise Disclosure Document, the Franchise Agreement does contain a liquidated damages clause. However, the FDD explicitly states that under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable. This means that while Degree Wellness includes such a clause in its agreement, its enforceability is not guaranteed in California and would be subject to legal interpretation.
Specifically, the Degree Wellness Franchise Agreement states that if a franchisee breaches Section 9 of the agreement, Degree Wellness would suffer damages of at least $50,000. In addition to these liquidated damages, the franchisee must also pay any actual damages exceeding this amount, plus all attorney's fees incurred by Degree Wellness. Section 9 likely refers to a section in the agreement that addresses confidential information, non-disclosure, and non-competition obligations.
This has significant implications for prospective Degree Wellness franchisees in California. While the franchise agreement stipulates a specific amount for damages resulting from certain breaches, California law may deem such clauses unenforceable depending on the specific circumstances and the reasonableness of the stipulated amount. Therefore, franchisees should consult with legal counsel to understand the potential enforceability of the liquidated damages clause and the potential financial exposure in case of a breach of the franchise agreement.