A twenty plus year Chicago area Dunkin' Donuts franchisee, Walid Elkhatib, must soon remove the Dunkin' Donuts signs outside his two shops. The dispute was over pork, specifically, pork in breakfast sandwiches and Mr. Elkhatib's religious proscriptions against eating or handling it. Mr. Elkhatib's need to rebrand his business highlights a downside of some franchise agreements, and also calls for care when contemplating one.
As the Chicago Tribune reported, Elkhatib began operating as a Dunkin' franchisee in 1979. At that point Dunkin' didn't sell any breakfast items with pork. In 1984, it began offering breakfast sandwiches with bacon, pork and sausage.
As the Seventh Circuit would explain on appeal of the later lawsuit, Dunkin' had no problem with Elkhatib's refusal to sell pork at his first, nor at his his second franchise. For almost 20 years he operated Dunkin' shops without pork and without problems from Dunkin'. Dunkin' even provided signs stating that no meat products were available.
Things changed in 2002 during a meeting about relocating one of his shops, when Elkhatib reiterated to Dunkin' supervisors that he would sell breakfast sandwiches, but not with pork. Little did he know, but that sealed Elkhatib's fate as a Dunkin' franchisee.
Dunkin' refused the relocation and any renewal of his existing franchise agreements for any of his locations. Elkhatib sued. His claim of religious discrimination was thrown out because franchisees are not employees, and therefore do not get federal workplace discrimination protection from their franchisor. His claims of racial discrimination in contracting finally met defeat in March. Now Dunkin' has sued to speed the removal of all signs of Dunkin' Donuts at Mr. Elkhatib's shops.
Franchise agreements offer definite benefits for some looking to get into a new business. They can allow quick name recognition, ease into the business start-up process and a bevy of other benefits. But those benefits come with strings.
One lesson to learn from Mr. Elkhatib's case is common to all contracts -- never leave anything in a contract with an "understanding" that it will not be enforced. Though agreements can be modified orally, it is always best to have the true understanding (and your true terms) in the written contract. In addition, his case calls attention to the need to understand three key areas covered in a franchise agreement: 1) to what extent operations are dictated by the franchisor (such as items offered, appearance of premises, etc.); 2) the conditions under which the franchisor terminate the franchise; and 3) the conditions for renewal.