What Happens if You Violate Your Franchise Contracts?

When you start a franchise, the franchisor gives you the right to use an established brand, including trademarked, patented and copyrighted intellectual property. This can make it easier to attract business, but also means that the franchisor exerts significant control over your business operations according to the terms outlined in your franchise agreement. Violating that agreement can quickly land you in legal trouble.

Your franchisee contract may outline specific penalties you have to pay for violating a franchise agreement. For example, if failing to publish an advertisement costs the franchisor money, you might have to pay back that money. There may also be a schedule of fees and fines for certain violations, with minor violations carrying smaller fines, and larger violations resulting in more significant sanctions.

Your franchise agreement gives you a group of licenses to use the company's property, but failing to follow the agreement can mean you lose this right. If you have a long history of violating your franchise agreement or if you violate an important provision, you could lose your franchise -- as well as any money you've invested. Your franchise agreement likely has a clause indicating under what circumstances you can lose your franchise.

A contract is a legally enforceable agreement, which means the franchisor can sue you to force you to follow the agreement. If you lose your franchise, you could end up being sued for any damages you've caused or money you owe to the franchisor. Even if you keep your franchise, though, the franchisor can still sue you for fines or penalties you've failed to pay, as well as any loss of revenue you've caused.

Not all franchise agreement violations are serious, and your contract likely has a clause allowing you a chance to cure a breach of the contract before you incur serious penalties. Small violations -- such as forgetting to put up a sign or leaving off your name badge one day -- likely won't result in serious penalties, as long as they're not ongoing. There's no guarantee that a small violation won't harm you, though, and the result of smaller violations depends both upon how strictly the franchisor enforces its agreement and the specific terms of your contract.