Changing the Rules: Requiring Franchisee Compliance with Future Performance Standards

There are several methods for creating contractually enforceable performance requirements, but in most cases a franchise contract contains general statements of performance obligations, such as “best efforts,” “adequate sales,” “sufficient inventory,” and “continuous and systematic sales efforts.” Some contracts supplement general performance provisions with a standards manual defining the details of many performance obligations under the franchise contracts. Other contracts simply reserve the right to set annual performance obligations, based on what the franchisor believes to be reasonable expectations of performance, given current market conditions.

Franchisors' attempts to specify annual performance obligations have frequently been criticized by franchisees as a one-sided amendment to a contract and occasionally challenged in court as unenforceable. Franchisors have countered with the argument that so long as the franchise contract permits the franchisor to set annual performance requirements, they are not an amendment to the contract, but rather consistent with the contract and the expectations of the parties. A recent case decided by the Illinois Court of Appeals has answered the issue in favor of franchisors. In Crossroads Ford Truck Sales, Inc. v. Sterling Truck Corporation, 792 N.E.2d 488 (Ill. App. 2003), the court solidly affirmed the franchisor's right to set contractually enforceable future performance requirements.