In Quiznos v. 1450987 Ontario Corp et al., Quiznos terminated three franchisees for violating terms of their franchise agreements for: selling under-portioned sandwiches to customers; failing to participate in promotions; and, failing to provide delivery service as directed. The three defendant franchisees denied that they had breached the terms of their franchise agreements and refused to comply with their post-termination obligations. As a result, Quiznos brought a motion for interlocutory relief to enforce the post-termination provisions of the franchise agreements.
In denying any wrongdoing, the defendant franchisees suggested that they were being terminated as retribution for their participation in certifying a class action against Quiznos. The defendant franchisees submitted that Quiznos was using the terminations as a form of retaliation, and as a method to threaten and influence the class members in the class proceeding. They further alleged that under the franchise agreements, they were not required to follow Quiznos promotions and had received legal advice in this regard. The defendant franchisees asked the court to dismiss Quizno’s Canada’s motion for interlocutory relief and requested an order preserving the status quo pending the trial of the action.
In granting Quiznos motion for interlocutory relief, the court found a strong prima facie case that the franchisees breached the franchise agreements by failing to fully comply with several promotions, and neglecting to implement the delivery program as directed. By refusing to comply with the directions of the franchisor, the franchisees failed to uphold the standards required of Quiznos’ franchises, and repeatedly challenged the integrity of the franchise system. Accordingly, the court determined that the actions of the defendant franchisees had challenged Quiznos’ rights as a franchisor, potentially affecting its relationship with other franchisees. In regard to the class proceeding, the court found that the class members would not suffer irreparable harm if the representative plaintiff’s franchise were terminated.
This case establishes that franchisees who repeatedly breach their obligations under their franchise agreements will be sufficient grounds for termination even where they received legal advice suggesting the contrary. Thus, it seems that franchisees who flout franchise agreements, even with legal advice, do so at their own risk. The fact that a franchisee is a class representative in a pending class proceeding, does not affect that franchisee’s obligation to adhere to the terms of the franchise agreement.