Franchisee 101: Shelf the Self-Help

Lewitt Hackman

Lola Salamah and Amro Elsayed signed a franchise agreement with M.M. Fowler, Inc., the franchisor of Family Fare gas stations, to operate a gas station franchise in North Carolina.

A few years into the franchise relationship, an employee stole nearly $23,000 of lottery tickets from their store. On the advice of Donald Pilcher, their business consultant and day-to-day contact with the franchisor, the couple bought back the tickets over time, by marking them as sold and placing their own funds in the store’s cash register. The franchisor was not told directly about the theft, because the franchise agreement mandated a faster timeline for the couple to repay the stolen amount.

Three years later, after having trouble repaying the rest of the lottery ticket debt, the couple asked Family Fare to split the difference. Family Fare responded with a termination notice based on “significant lottery shortages” at the store. The same day, Pilcher entered the store, took the key to the store’s safe, seized control of the cash register and had the locks changed.

The couple sued Family Fare, M.M. Fowler Inc., Pilcher and the company president, claiming defendants misclassified them as franchisees rather than employees, wrongly terminated their franchise in violation of civil rights laws because they are Arab Americans, and violated state unfair trade practices law based on the franchisor’s wrongful self-help eviction of the couple from their store.

The federal court in North Carolina ruled in the franchisor’s favor on the employment and civil rights claims and found that the termination was proper. However, on one issue the court sided with the couple, finding sufficient fact issues for the jury to decide if there was a wrongful eviction by force and by repossession of goods in the store. A jury would have to decide if harm from the eviction, in the form of the husband’s severe anxiety attack, an emergency room visit and medical bills, was caused by the termination and self-help actions.

Franchisors will often point to franchise agreement provisions that let the franchisor enter the premises in a termination. These provisions, however, do not give a franchisor a right to violate unfair business practice laws when using self-help. Going too far may give rise to damages claims by a franchisee.

Read: Elsayed v. Family Fare LLC, No. No. 1:18-cv-1045 (M.D.N.C. Aug. 10, 2020)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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