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Claiming compensation for breach of contract – franchisees vs franchisors

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There was a lot of coverage in the UK media back in March 2018 regarding the so called ‘great chicken crisis 2018’, where hundreds of KFC stores throughout the UK had to close because deliveries of chicken – the prime menu item on most KFC meals – failed to reach the stores. As most of these stores operate on a franchise basis, with the store owner being the franchisee and KFC being the franchisor, the question now being asked is can the stores be compensated for loss of earnings?

The problems with the failed deliveries stemmed from changes that KFC, the world’s second largest restaurant chain with over 20,000 locations globally, made to their delivery operation in the UK. KFC decided to use a new delivery contractor (DHL) to try to save costs in the management and fulfilment of its vital regular UK deliveries, but early problems from DHL’s side may have cost KFC and its franchisees over £1m a day in lost revenues. The GMB union has claimed that the problems stemmed from cost-cutting by DHL in trying to fulfil the deliveries from a single UK distribution centre.

Can KFC franchisees claim?

Whilst the extensive media coverage surrounding KFC’s problems will mean that KFC should compensate employees, many on zero-hours contracts, directly, the terms of the franchise agreement means that franchisees are not allowed to source ingredients & chicken from another supplier. With franchises with major global brands such as KFC costing up to £1million to buy and with a significant percentage of a revenues also being due, and with the terms of the franchise being so carefully locked down, what happens when a franchisee makes significant losses through no fault of their own?

Compensation – loss of earnings and breach of contract

As is often the case with such commercial agreements and contracts, the devil is in the detail. Such agreements, especially with such well established brands, should contain in-depth information regarding what happens in the event of a problem, who is responsible and what rights to compensation are included. Even with franchise agreements typically being drafted in significant favour of the franchisor, it is important to check the contract in detail to see if there are contractual grounds for compensation. There may also be indemnity clauses covering problems with ‘upstream’ suppliers (ie: other companies providing products or services to the franchisor), and there may be grounds for a breach of contract compensation claim.

If you need advice on how to make a cliam for loss of earnings or breach of contract, Advantage Litigation Services are here to help. Click here to contact us today or call 0800 160 1298.

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