Timelines of Franchisee Termination

The Alabama Supreme Court ruled that a motor vehicle manufacturer could terminate a dealer due to the deteriorating condition and appearance of the dealership’s facility even though the manufacturer was aware of the appearance problems more than 180 days before giving notice of termination to the franchisee. The Court held that, because the problems were both evolving and continuous, the time-notification requirement set forth in the Alabama motor vehicle dealer law was not violated.

The Alabama law prohibits automobile manufacturers from premising a termination decision on a breach that is over 180 days stale before notice of termination is given. However, the Court found that the breaches by the franchisee were repeat occurrences of the same conduct and held that each new occurrence “restarted the clock” for purposes of notice. Courts in jurisdictions with similar statutes have likewise held that each instance of noncompliance with a franchise agreement should be considered a new ground for termination.

In contemplating the termination of a franchisee, franchisors should consider the significance of timing. State laws often impose notice requirements, and such requirements can vary from state to state.

Smith’s Sports Cycles, Inc. v. American Suzuki Motor Corporation, Ala. Sup. Ct., No. 1100400, October 14, 2011.

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