What happened to Hardee's locations and why payment disputes matter
In 2023 and 2024, dozens of Hardee's franchise locations closed across the United States following a legal dispute between the chain's parent company, Restaurant Brands International (RBI), and franchisees over payment obligations. The closures were not a sudden brand collapse but the result of a specific breakdown in how franchise fees, royalties, and operational costs flow between corporate headquarters and individual restaurant owners. Understanding this dispute reveals how payment structures in franchise systems can create friction when terms are interpreted differently or when one party believes the other is not holding up their end of the agreement.
The core issue centered on what franchisees owed RBI and when those payments were due. Franchisees claimed they were being asked to pay fees and royalties that exceeded what their franchise agreements specified, while RBI maintained that the payments were contractually required. When franchisees refused to pay or fell behind, RBI moved to terminate their franchise agreements, which left those restaurant owners without the right to operate under the Hardee's brand. Some chose to close rather than fight the legal battle; others attempted to negotiate settlements.
Key Takeaways
- Franchise payment disputes typically involve disagreements over royalty rates, marketing fund contributions, or technology fees that franchisees claim exceed their contract terms.
- When a franchisor terminates a franchise agreement due to non-payment, the franchisee loses the right to use the brand name and operating system, making the restaurant unsustainable to run independently.
- Franchisees have limited legal recourse once a termination is issued, though some states offer stronger protections for franchise operators than others.
- Payment disputes in franchise systems often stem from ambiguous contract language, changes in corporate policy, or disagreement over what counts as a legitimate operational expense.
How franchise payment structures create dispute risk
A franchise agreement typically requires the franchisee to pay multiple streams of money to the franchisor: an initial franchise fee (usually paid once), ongoing royalties (often a percentage of sales), and contributions to national marketing funds or technology platforms. The Hardee's dispute involved disagreement over which of these payments were owed and at what rate.
The problem arises when contract language is broad or when corporate policy changes without a corresponding amendment to individual franchise agreements. A franchisee might have signed a contract specifying a 5% royalty rate but later receive a notice that the rate is now 6%, justified by reference to a clause the franchisee interprets differently. If the franchisee refuses to pay the higher rate, the franchisor can declare them in breach of contract and move toward termination.
In the Hardee's case, franchisees argued that certain fees being demanded were not clearly outlined in their original agreements or that the fees had been imposed without proper notice or consent. RBI maintained that the payments were authorized under the contract's existing terms. This kind of disagreement is common in franchise systems because the power imbalance is structural: the franchisor controls the brand, the operating manual, and the legal interpretation of what the contract allows.
Why termination is devastating for franchise operators
When a franchisor terminates a franchise agreement, the franchisee loses more than just the right to use the brand name. They lose access to the entire operating system: the supply chain, the approved vendors, the marketing materials, the point-of-sale system, and the training and support network. A Hardee's restaurant cannot straightforward rebrand itself as an independent burger shop and continue operating with the same menu, layout, and customer base.
The franchisee also faces the reality that their business location, equipment, and inventory were chosen and configured specifically for the Hardee's system. Repurposing a Hardee's building for a different concept requires renovation, new equipment, new licensing, and rebuilding a customer base from zero. Many franchisees in the 2023–2024 closures chose to shut down rather than attempt this transition, particularly if they had already invested significant capital into the location.
Additionally, the franchisee may face contractual restrictions even after termination. Some franchise agreements include non-compete clauses that prevent the former franchisee from opening a competing restaurant in the same territory for a set period, sometimes two to five years. This means a closed Hardee's location might sit vacant while the former owner waits out the restriction period.
State-level franchise protection laws and their limits
Some states have franchise protection statutes that require franchisors to act in good faith, provide notice before termination, or offer a cure period (a window to fix the breach before termination takes effect). States like California, New York, and Wisconsin have relatively strong protections; others have minimal or no franchise-specific laws.
However, these protections have significant limits. Most state laws do not prevent termination for non-payment if the contract clearly specifies the payment obligation. They may require the franchisor to provide notice and a cure period, but if the franchisee does not pay within that window, termination can proceed. The franchisee's recourse is typically to sue for breach of contract or bad faith, which requires hiring an attorney and proving their case in court—an expensive and uncertain process for a small business owner.
In the Hardee's dispute, franchisees in different states had different legal options depending on where their restaurants were located. Some pursued litigation; others negotiated settlements with RBI. The variation in state law meant that two franchisees in similar situations might have had very different leverage in negotiations.
How payment disputes escalate to closures
The typical sequence begins with a payment demand. The franchisor sends notice that a fee is due or that a royalty rate has changed. The franchisee disputes the demand, either by refusing to pay or by paying under protest while disputing the amount. The franchisor then issues a notice of breach, usually with a cure period of 10 to 30 days. If the franchisee does not pay the full amount demanded within that window, the franchisor issues a termination notice.
Once termination is issued, the franchisee has a choice: pay what the franchisor demands to reinstate the agreement, negotiate a settlement, fight the termination in court, or close the restaurant. The Hardee's franchisees who closed had typically exhausted negotiation options and concluded that the legal and financial cost of fighting the termination exceeded the value of continuing to operate.
Some franchisees attempted to operate under the terminated agreement anyway, which exposed them to additional legal liability. Others tried to sell their location to a new franchisee, but potential buyers were reluctant to take on a location with an active dispute with the franchisor. The closure became the path of least resistance.
What the Hardee's dispute reveals about franchise system risk
The Hardee's closures illustrate a structural vulnerability in franchise systems: the franchisee bears the operational and financial risk of running the restaurant, but the franchisor retains the power to terminate the agreement and shut down the business. This asymmetry means that even a dispute over a relatively small amount of money can result in the closure of a restaurant that employs dozens of people and represents years of the franchisee's investment.
The dispute also highlights how payment terms in franchise contracts can be a source of conflict. Ambiguous language, broad discretion for the franchisor to impose new fees, or lack of clarity about what counts as a legitimate expense creates room for disagreement. Franchisees who sign agreements without legal review, or who do not fully understand the payment obligations, are particularly vulnerable.
For franchisors, payment disputes create operational and reputational risk. When multiple franchisees close simultaneously, it signals to the market that the franchise system may be unstable or that the franchisor is aggressive in enforcing payment terms. This can deter new franchisees from joining and can damage the brand's reputation with consumers.
How franchisees can protect themselves in payment disputes
Before signing a franchise agreement, a prospective franchisee should have an attorney review the payment terms and clarify exactly what fees are due, when they are due, and under what circumstances they can change. The agreement should specify the royalty rate, the marketing fund contribution, any technology fees, and any other recurring payments. It should also define what happens if the franchisee disputes a payment demand.
During the operation of the franchise, the franchisee should maintain clear records of all payments made and should request written confirmation from the franchisor when a payment is received. If the franchisor demands a new or increased payment, the franchisee should request the demand in writing and should not pay until they understand the contractual basis for the demand.
If a payment dispute arises, the franchisee should seek legal counsel when ready. Waiting to respond to a breach notice or a termination notice can weaken the franchisee's position. An attorney can review the contract, assess the franchisee's legal options, and advise whether negotiation or litigation is the better path.
Frequently Asked Questions
Can a franchisor change payment terms without the franchisee's consent?
It depends on the contract language. If the agreement gives the franchisor broad discretion to modify fees or royalty rates, the franchisor may be able to do so unilaterally. However, most state franchise laws require the franchisor to act in good faith and to provide notice of material changes. A franchisee who believes a fee increase violates the contract should consult an attorney before paying.
What happens to a closed franchise location?
The location typically remains vacant or is repurposed for a different business. The franchisee may be unable to operate any restaurant in that location for a set period due to non-compete clauses. The building and equipment may be sold, but the value is often significantly reduced because the location was configured for a specific franchise system.
Do all states protect franchisees equally in payment disputes?
No. States like California, New York, and Wisconsin have franchise protection laws that require notice, cure periods, and good faith conduct. Other states have minimal or no franchise-specific protections. The franchisee's legal options depend partly on where the restaurant is located.
Can a franchisee sue for wrongful termination?
Yes, but the burden is on the franchisee to prove that the franchisor breached the contract or acted in bad faith. If the contract clearly authorizes the payment the franchisor demanded, and the franchisee did not pay, the franchisor's termination is typically legal. Litigation is expensive and uncertain, which is why many franchisees settle or close instead.
How can a franchisee avoid payment disputes?
Have an attorney review the franchise agreement before signing, clarify all payment obligations in writing, maintain detailed payment records, and respond promptly to any payment demand with written questions if the demand is unclear. If a dispute arises, seek legal counsel when ready rather than waiting to see if the issue resolves on its own.