A franchise relationship can unravel for many reasons: a franchisor changes system requirements without warning, a franchisee falls behind on royalty payments, or either party fails to uphold the agreement. What happens next depends heavily on the agreement’s specific clauses and which state franchise or contract laws apply.
At August Law, our franchise attorneys have handled both sides of this kind of breakdown in Michigan, and the path forward tends to follow a similar pattern regardless of which party pushes for a resolution.
Common Signs a Franchise Relationship Has Broken Down
Franchise disputes often begin with a specific triggering event: a notice of default, a demand letter, an unexpected audit, or a franchisor’s decision not to renew the agreement. Other disputes build gradually, through repeated disagreements over supplier requirements, advertising fund contributions, or territory encroachment.
Recognizing early signs of a serious dispute, rather than waiting for a formal notice of termination, gives both sides more options to resolve the matter without litigation.
Steps to Take Before Litigation Begins
Before a dispute escalates into a lawsuit, review the franchise agreement’s default and cure provisions closely. Most agreements require written notice of an alleged default and give the other party a specific window to fix the problem before taking further action.
Skipping or shortening that cure period is a common mistake that can undermine an otherwise valid claim. Many agreements also require mediation, or specify arbitration, before either party can file suit, and failing to follow that sequence can delay or complicate a case later.
How These Disputes Play Out in Michigan
In Michigan, the Michigan Franchise Investment Law (MCL § 445.1527) shapes how a breakdown can be lawfully resolved. A franchisor generally needs good cause and reasonable notice to terminate before the end of the term, and non-renewal generally requires either fair compensation to the franchisee or comparable terms extended to similarly situated franchisees in the system.
The law also prevents a franchisor from forcing a Michigan franchisee to arbitrate or litigate outside the state. When a franchisor fails to follow these requirements, the franchisee may have grounds to challenge the termination and recover damages, attorney fees, and costs.
What Remedies Might Be Available
Depending on the facts and the state involved, remedies in a franchise dispute can include monetary damages for lost profits or investment, rescission of the agreement, an order preventing improper termination, or, in Michigan, statutory damages and attorney fees for certain violations. Which remedies are realistic depends on the agreement, the documentation, and how quickly you addressed the issue after it surfaced.
Getting Ahead of a Breakdown
A franchise agreement gone wrong rarely resolves favorably without a clear understanding of the contract’s terms and the applicable law. Addressing the problem early, with a full picture of your options, generally produces a better outcome than waiting until a lawsuit is unavoidable.
If your Michigan franchise relationship has developed into a serious dispute, August Law can review the agreement, explain how its terms apply, and help you evaluate your options. Reach out to us online to schedule a meeting with our team.