Dunkin' Donuts Canadian Franchisees Awarded C$16.4 Million
Written by Ken Gaebler
Legal decision based on the franchisor's failure to adequately maintain the brand in contested territories.
According to the Quebec Superior Court, franchisors have a responsibility to maintain the strength and marketability of their brand on behalf of their franchisees.
In an important Canadian legal decision, the Quebec Superior Court has ruled that Dunkin' Donuts will be required to pay franchisees in the province of Quebec C$16.4 million because the franchisor failed to promote or support the brand in the territory, directly resulting in the loss of 21 franchised stores. Over the past 14 years, the number of Dunkin' Donut stores in Quebec has dropped from 200 to 11, largely due to competitive pressure from Tim Horton's.
"In this case, you have a very large franchisor with a successful chain and it's facing a competitive threat by another large chain, i.e. Tim Hortons," said Toronto-based franchise lawyer David Sterns of Sotos LLP to Canada.com. "And the judge's view is that the franchisor couldn't just cede the territory to the competitor, that it was incumbent on the franchisor to hold the ground for the system."
The court's ruling covers damages that were incurred from 2000 to 2006, and is tied to what appears to be a breach of the franchise agreement. Franchise agreements are part of the basics of franchise law and play an important role in the long-term viability of individual stores as well as the vitality of the entire franchise.
Based on the franchise agreement and other factors, Dunkin' Donuts' argument that the franchisees should be held responsible for individual store closings was rejected by Justice Daniel Tingley: "A successful brand is crucial to the maintenance of the franchise. However, when the brand falls out of bed, collapses, so too do those who rely on it."
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