Franchisees Should Carefully Consider Full Release When Staying in Franchise System
It is not unusual for a franchisor and franchisee to have a dispute that is resolved and then the franchisee continues in business. In those circumstances, a franchisor will often resolve the dispute with the franchisee in exchange for a full release of claims. These releases state that the franchisee is releasing the franchisor for any and all claims through the date of the release. The franchisee, often more than happy to have the dispute behind them, will agree to the release with few questions asked.
Franchisees need to think twice about agreeing to a full release in this circumstances. While it may resolve the current dispute, it will also potentially gut a significant portion of a franchisee's case against a franchisor should a dispute arise again. The franchisee must obtain sufficient compensation or other settlement terms that make it worth giving up all claims. Chances are there will not be a second bite at the apple after a release is signed for past claims including issues not central to the initial dispute that may be raised by the franchisee later.
I am not saying a full release in these situations is never warranted. The franchisee continuing in business just needs to make sure it gets full compensation and understands that a full release will significantly limit the claims against the franchisor in the future.
