Dickey’s Barbecue franchise team lost a potential franchise deal that could have brought the company over $1,000,000 in franchise fees, royalties and vendor rebates. We’re confident they’ll lose more and more lucrative franchise deals as word spreads about the deal-killer lurking in their franchise agreement.
(UnhappyFranchisee.Com) Dickey’s Barbecue just lost a potential $1,000,000+ in franchise fees, franchisee royalties and vendor rebates… and they don’t even know it.
The would-be franchisee was an ideal franchise prospect: Well-capitalized… Experienced…. With a history of success in multiple ventures.
The prospective franchisee loves Dickey’s products and business model.
He knows of a restaurant space with a great location and reasonable rent.
But he was troubled by the negative publicity the franchise was getting on the Internet (namely UnhappyFranchisee.Com).
He asked a franchise advisor if the criticisms were valid or just sour grapes.
After reviewing our blog posts, the advisor pointed out that the Dickey’s franchise agreement has a termination clause that says that if Dickey’s terminates a franchisee for any reason – even if the franchisee’s restaurant is not yet open – the franchisee must immediately pay the franchisor royalties on the remainder of the 20-year term.
In essence, said the advisor, the franchisee is on the hook for $600,000+ as soon as they sign the Dickey’s franchise agreement.
In the opinion of this experienced franchise advisor: “No sane or rational person would sign such an agreement.
Being neither insane nor irrational, the prospective franchisee decided to pursue other opportunities.
Dickey’s Termination Clause: A Franchise Deal Killer?
ARTICLE 17. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon the termination or expiration of this Agreement, all rights granted hereunder to you shall terminate and:
… you must pay to Dickey’s in a single lump sum payment, as liquidated damages and not as a penalty, after early termination of the Franchise Agreement, liquidated damages equal to royalty fees for the number of months remaining in the term of the Franchise Agreement (or the renewal term, if applicable) based on the monthly average of the royalty payable to us. If the Franchise Agreement terminates after the second year of the term, then liquidated damages shall be calculated based upon the average monthly Net Sales of your Restaurant reported for the 12 months preceding termination…
… If your Restaurant has not yet opened, or has not been open for at least 24 months at the time of termination, the average monthly Net Sales used to calculate Liquidated Damages will be based upon the average monthly Net Sales of all Dickey’s Restaurants for the preceding fiscal year as determined from the audited financial statements of Dickey’s published in its Franchise Disclosure Document. An example of these calculations is included in the Operations Manual. Both assume an aggregated monthly average of the Royalties paid each week.
Question: Would Dickey’s actually try to enforce such its draconian Dickey’s Franchise Termination Clause?
In a word: Yes.
Take the sad case of 54-year-old James Neighbors, a franchisee who was admittedly woefully undercapitalized and inexperienced.
Only three months after his Grand Opening, Dickey’s sent James Neighbors a termination letter because he had fallen $1205.58 behind in his royalty payments.
Dickey’s demanded that Neighbors close his new restaurant and immediately pay them liquidated damages of $675,122.25. Neighbors received this demand:
In other litigation against franchisees, Dicky’s is demanding $966,891.38 from a failed franchisee named Joseph Mathieu. Here’s an excerpt from the termination notice included in Dickeys vs. Mathieu:
Dicky’s is also demanding $320,930.52 from another franchisee named Eric Mulkey in the suit Dickeys vs. Mulkey. Here’s an excerpt from the termination letter sent to that franchisee:
A lawsuit filed by multiple Dickey’s franchisees in California (see DICKEY’S Franchise Class Action Lawsuit Filed in CA) claims that Dickey’s is a predatory franchise organization interested in making as much money off its franchisees as possible.
The Dickey’s Franchise Termination Clause certainly doesn’t seem to disprove that serious allegation.
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