L. Michael Hankes  |  ATTORNEY AT LAW
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The Right to Independence

The current Meineke Franchise and Trademark Agreement (hereafter “Meineke FTA”) contains an important fundamental contractual right that is unusual in franchising. The Right to Independence was created when the form 2000 Meineke FTA was negotiated in the 1999-2000 time period. The negotiations which produced the form 2000 Meineke FTA occurred in the after-math of the devastating Broussard litigation, which had at its roots allegations of misuse of the Meineke Advertising Fund (hereafter “MAF”) by Meineke.

This particular contract right was one of the fundamental bases for the form 2000 Meineke FTA. Its purpose was to provide long term Dealers with the opportunity to exit the Meineke System at the end of their tenure, without exposure to suit by Meineke under post-term non-competition covenants. Conversely, in cases where an existing Dealer exercised the right, Meineke had the opportunity to re-structure the Market Area as the Dealer was leaving the Meineke System. Before any Dealer could actually execute the Right to Independence Rider(s), that Dealer had to complete 15 years in the Meineke System.

Upon renewal, a Dealer who had completed 15 years in the Meineke System could then elect a 5, 8 or 15 year renewal term. If the Dealer elected a 5 or 8 year term, the Dealer was entitled to the execution of the Reciprocal Independence Rider. On the other hand, if the Dealer elected another full 15 year term, that Dealer could elect to execute the Unilateral Right to Independence Rider. The Reciprocal Right to Independence Rider and the Unilateral Right to Independence Rider differ because Meineke was given certain rights to begin planning early for the exit from the Meineke System of a Dealer who elected the shorter 5 or 8 year term.

The Right to Independence was considered so fundamental that it was offered by Meineke until 2012 to any renewing Meineke Dealer regardless of whether or not that Dealer had actually signed the form 2000 Meineke FTA. All the Dealer had to do was pay the $2,500.00 renewal fee and the Dealer was entitled to execute the Right to Independence Rider applicable to the renewal term chose by the Dealer. Again, the Dealer has to first complete 15 years in the Meineke System.

Simply stated, the Right to Independence Rider allowed the renewing Meineke Dealer to become an Independent at the end of the renewal term. Both the Reciprocal Right to Independence Rider and the Unilateral Right to Independence Rider affirm this principle in the first paragraph stating in relevant part:

Notwithstanding anything to the contrary contained in the Franchise Agreement, if you give us written notice, not more than 21 months and not less than 18 months prior to the expiration of the term of the Franchise Agreement, that you desire to operate an automobile repair and maintenance business independent of us after expiration (“Independence Notice”), then we will not have any right under the Franchise Agreement to take possession of the Premises of your Center and you will not be subject to any post-termination non-competition covenant contained in the Franchise Agreement on expiration of its term….

(Right to Independence Rider(s) ¶ 1).

Key to the exercise of this right is the requirement that the Dealer must give written notice to Meineke of the Dealer’s intent to actually exercise the Independence Right “not more than 21 months and not less than 18 months prior to the expiration of the term of the Franchise Agreement.” Thus, the Dealer who may have executed one of the Right to Independence Riders must keep a watchful eye on the calendar as that Dealer plans for his or her exit strategy from the Meineke System.

The Dealer must also follow the requirements contained in the applicable Right to Independence Rider to complete the exercise of the Right to Independence and become Independent at the end of the term.

Section 14 of the Meineke FTA prevents Meineke from taking away the Right of Independence for renewing Dealers who have signed the form 2000 Meineke FTA. The last paragraph of Section 14 of the Meineke FTA states in relevant part:

… The term “Successor Franchise Agreement” shall mean our then-current form of franchise agreement, which may contain provisions materially different from those contained herein, except: (i) that we agree not to materially change the provisions of Section 2.3, Section 3.2, Section 3.4, or Section 17.13; and (ii) at your option, the term of the successor franchise may be for 15 years (in which case the Unilateral Right to Independence Rider, attached hereto, shall be execute by both parties), 8 years or 5 years (in which case the Unilateral Right to Independence Rider shall not be executed and instead, at your option, the Reciprocal Right to Independence Rider, attached hereto, may be executed by both parties). The term “Successor Franchise Agreement” shall also include all ancillary agreements (including personal guarantees by your Owners and a remodeling agreement in form and substance satisfactory to us) which we then customarily use in granting successor franchises for the operation of Meineke Car Care Centers. The parties hereto explicitly acknowledge and agree that the Unilateral Right to Independence and Reciprocal Right to Independence Riders are not part of this Agreement and are attached hereto solely for purposes of establishing such rights in connection with any successor franchise agreement.

(Emphasis added). (Meineke FTA § 14).

Renewing Meineke Dealers should be vigilant in insisting that they execute the applicable Right to Independence Rider upon renewal and be just as vigilant in following the requirements of the Right of Independence once it has been executed.

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.