Franchisees Bound by Arbitration Clauses

The U.S. Court of Appeals in Boston found that a group of janitorial business owners, who became franchisees as transferees of franchise agreements, had adequate notice of the arbitration provisions contained in those agreements prior to their transfer.  Thus, the court ruled that the franchisees were required to arbitrate their myriad claims against the franchisor.

The transfer agreements executed by the franchisees incorporated the arbitration clauses by reference, and each of the franchisees had guaranteed the performance of “all responsibilities, duties, indebtedness and obligations of the [previous [f]ranchisee] under the [Franchise] Agreement.”  While the franchisees argued that it would be unconscionable to bind them to arbitration clauses that they never saw, the court noted that Massachusetts law does not impose a heightened notice requirement for arbitration agreements.  Furthermore, the court held, the Federal Arbitration Act would preempt any such notice requirement.  As the court emphasized, Massachusetts law mandates that those who sign agreements are bound by their terms regardless of whether they have read them or not.

 Awuah v. Coverall North America, Inc., No. 12-1301, 1st Cir., (December 27, 2012).

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