Franchisees aren't always excited when their franchisor introduces a new policy. But if a new policy overreaches and might doom a franchisee's business, can it be stopped before it starts?

Automotive Technologies, Inc. ("ATI") is the franchisor of "Wireless Zone" stores. These stores sell Verizon Wireless cell phone products and services. The franchisor, ATI, received sales commissions from Verizon that it passed on to franchisees who made the sales. ATI also paid performance incentive payments ("PIPs") to franchisees when they sold certain phones. When ATI announced it would stop paying the PIPs or start taking a 5% royalty from commissions before passing them on, a group of franchisees sued. They claimed the new policy was a breach of contract, unjust enrichment, and unfair practice, and asked the court for a preliminary injunction to stop the new policy.

The court ruled that to immediately stop ATI from applying its plan, the franchisees had to show they would be irreparably harmed - that is, they would lose "substantially all of their businesses." Based on financial information from the franchisees, the court found they could suffer no more than a 2% loss of revenue from ATI's new policy, and were not at risk of losing their businesses. The court denied the preliminary injunction.

Franchisors and franchisees may disagree on what is best for a franchise system, and the wisdom of a particular course may be known only in time. The case shows that franchisees must meet a high bar before a court will cut off a proposed new policy implemented by the franchisor in good faith.