DICKEY’S Franchise Lost A $1M Sale Today. Here’s Why.
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?
Here’s the Dickey’s termination clause from its franchise agreement:
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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DICKEY’S Franchise Owner Claims he was Burned by Dickey’s, Roland Dickey, Jr.
Are DICKEY’S BARBECUE PIT Franchise Owners Being Exploited?
DICKEY’S BARBECUE PIT: How to Lose Everything in 5 Years or Less (Part 1)
DICKEY’S BARBECUE PIT: How to Lose Everything in 5 Years or Less (Part 2)
DICKEY’S BARBECUE Franchise, Jerrel Denton, Roland Dickey Jr. Sued for Fraud
DICKEY’S Franchise: Open Letter to Roland Dickey, Jr.
DICKEY’S BBQ Is Dickey’s Overselling its Franchise Opportunity?
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ARE YOU FAMILIAR WITH THE DICKEY’S BARBECUE PIT FRANCHISE OPPORTUNITY? SHARE A COMMENT BELOW.
Tags: Dickey’s Barbecue Pit Class Action Lawsuit, Dickey’s class Action Lawsuit, Dickey’s franchise lawsuit, Dickey’s franchisee lawsuit, Dickey’s Barbecue Pit, Dickey’s Barbecue Pit franchise, Roland Dickey Jr., Roland Dickey, Dickey’s franchise termination clause, James Neighbors, Joseph Mathieu, Eric Mulkey
2 thoughts on “DICKEY’S Franchise Lost A $1M Sale Today. Here’s Why.”
Who in their right mind would EVER sign an agreement like that?
The moment I saw that clause, I’d be beating feet for the door.
No surprise that the capitalized potential Franchisee walked.
Nobody of import:
That clause is buried in 279 pages of boring disclosure document that probably even many attorneys wouldn’t notice. A prominent franchise attorney with experience with liquidation clauses said it was as extreme as they get and likely not enforceable.
The judge in the James Neighbors lawsuit called it an “impermissable” penalty and said it was 123 times higher than other awards ruled to be excessive.
So why have a legal penalty that’s unenforceable? Well, some suggest that Dickey’s uses it as a club used to intimidate franchisees and keep them from closing as long as possible. Also, it might be used as a way to get departing franchisees to sign gag orders… as in, we’ll release you from the $600,000 you owe us if you promise not to squeal to us on UnhappyFranchisee.Com ;)
We strongly feel that the gag orders, non-disclosure, non-disparagement agreements some franchisors get departing franchisees to sign are a direct violation of, at the very least, the spirit of FTC Franchise Rule disclosure requirements aimed at enabling dialogue between prospective franchisees and current and former franchisees of a given system.
Franchisees hesitant to share their experiences should contact me at UnhappyFranchisee[at]gmail.com. We have ways to ensure that anonymous submissions remain anonymous.
Long live the 1st Amendment!