Franchising Foes Fight A Big Renewal Battle

…for more than 30 years Block's franchises had automatically renewed unless both sides decided otherwise. Such "evergreen" arrangements used to be the norm, but in recent years franchisers increasingly have had the final say in whether to renew a franchise…"Block turned the contract on its head," contends Minneapolis attorney Michael Garner, who represents the plaintiff franchisees. "It convinced the trial court that its franchisees were like employees, and could be terminated at will."

The Wall Street Journal
April 2, 2002

Franchising Foes Fight A Big Renewal Battle
Richard Gibson

A Missouri court's decision on terminating franchise agreements is alarming franchisees.

How franchise agreements get renewed is at issue in a lawsuit involving H&R Block Inc., the tax-service company, and its franchisees. Concerned about the outcome's implications, franchise organizations on both sides of the issue have filed amicus briefs with the state appellate court considering the matter.

The case began in 1999 when 16 of Block's largest franchisees sued the Kansas City, Mo., company for allegedly hindering their businesses, in part by selling tax-preparation software to the public. After countersuing, Block notified the plaintiffs that their franchises would expire at the end of their current five-year terms. Block contended that unless both sides consented to a renewal, the agreements would automatically end.

Not so, the franchisees replied. They said that for more than 30 years Block's franchises had automatically renewed unless both sides decided otherwise. Such "evergreen" arrangements used to be the norm, but in recent years franchisers increasingly have had the final say in whether to renew a franchise. The trial court sided with Block, and the case is before the Missouri Court of Appeals.

"Block turned the contract on its head," contends Minneapolis attorney Michael Garner, who represents the plaintiff franchisees. "It convinced the trial court that its franchisees were like employees, and could be terminated at will." Four franchisee associations presented similar arguments in their friend-of-the-court briefs. But the International Franchise Association, which speaks for many franchisers, argued that it is "unrealistic to impose a perpetual relationship on the parties."


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