Does the Degree Wellness Franchise Agreement contain a liquidated damages clause, and under what circumstances might it be unenforceable according to California Civil Code Section 1671?

According to Degree Wellness's 2025 Franchise Disclosure Document, the Franchise Agreement does contain a liquidated damages clause. This means that the agreement specifies an amount of money that a franchisee must pay to Degree Wellness in the event of a breach of contract.

However, the FDD also states that under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable. This is a critical point for prospective franchisees in California. California law scrutinizes liquidated damages clauses and may deem them unenforceable if they are considered unreasonable or punitive.

For a Degree Wellness franchisee in California, this means that while the Franchise Agreement includes a liquidated damages clause, its enforceability is not guaranteed. If a franchisee breaches the agreement and Degree Wellness seeks to enforce the clause, a California court could determine that the specified damages are excessive or bear no reasonable relationship to the actual harm suffered by Degree Wellness, rendering the clause unenforceable. It would be prudent for potential franchisees to consult with legal counsel to fully understand the implications and potential risks associated with this clause, especially in light of California law.