Pizza franchisees demand new deal

Owners are seeking a ruling that allows them to convert franchises to independent restaurants as franchise agreements expire, rather than sign new agreements which they believe contain onerous conditions.

San Francisco Business Times
September 27, 1996

Pizza franchisees demand new deal
Clifford Carlsen

Round Table Pizza operators are accusing the company of cheesy management practices and have turned to the courts in an effort to renegotiate their franchise agreements.

Franchise owners meeting this week in Hawaii have filed suit in San Francisco Superior Court asking that key conditions in their franchise agreement be nullified, freeing them from non-competition clauses which prevent them from operating non-Round Table pizza restaurants. Owners are seeking a ruling that allows them to convert franchises to independent restaurants as franchise agreements expire, rather than sign new agreements which they believe contain onerous conditions.

"We have been negotiating with them for a year-and-a-half and currently have 12 units that are operating with expired franchising agreements," said Bill Rupp, president of Castle Management, Round Table's largest franchisee and head of the Round Table Owners Association. "We want an agreement that is equitable to both sides, but frankly, the only way we have any control over the terms is if we can get approval to withdraw from the system."

Rupp said that Round Table's biggest growth period was in the mid-1970s. Restaurants that were opened at that time are now seeing their 20-year franchise agreements coming due. He estimated that there are as many as 100 units in the $329 million, 503-unit chain that currently are operating without agreements.

The lawsuit on behalf of the franchisees asks the court to free owners from a competition clause in existing franchise agreements, so that owners of multiple units could convert restaurants that are operating under expired agreements, yet still remain in good standing on their other units. California law has made post-term competition covenants essentially unenforceable, but owners of restaurants with unexpired franchise agreements can legally be held to the non-compete rules.

Round Table management would not return calls for this story, but the company has said that it would sue any owners that convert units where franchise agreements have expired. That, say franchisees, is what prompted the lawsuit.

"When the lawsuit was drafted, we also made an offer to management to go back to the table, but they have not agreed to negotiate," said Peter Singler, a Sebastapol lawyer who represents owners comprising about 60 percent of all Round Table franchises. "We are not getting any agreement, and they are forcing us down a road we don't want to go down."

Franchisees are asking for longer terms than the 10 years management is offering in new contracts. They also are asking the franchiser to provide better accounting of an advertising fund supported by franchisees, and of fees paid by suppliers to the franchising company.

Rupp, whose company operates 43 Round Tables in Northern California, said the company only recently admitted that it receives fees from suppliers, but has refused to supply an accounting of advertising expenses. Rupp said only 72 percent of the total ad fund is being spent on media buys, while franchisees want 80 percent.

Round Table's franchise growth has been stagnant for about the last five years, but Rupp said franchisees are relatively happy with the way the company is operating and have had no organized dispute until the issue of franchise renewals arose. He said franchisees would rather not leave the system, but believe the court will recognize their right to do so in the face of what they believe are unfair terms for renewal.

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