Constructive Termination Actionable Under New Jersey Franchise Practices Act

The New Jersey Appellate Division has ruled that constructive termination is actionable under the New Jersey Franchise Practices Act. See Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc., 975 A.2d 510 (N.J. App. 2009).

The Act prohibits a franchisor from "terminating" a francisee without "good cause" and also prohibits the franchisor from imposing "unreasonable standards of performance" on a franchisee. The court held that "termination" also includes the common-law concept of "constructive termination."

The court explained that "rather than directly and unambiguously terminating the plaintiff, [defendant] engaged in a course of conduct geared to forcing out the plaintiff." For example, the defendant expressed its desire to be rid of plaintiff, appointed a second dealer in plaintiff's territory, and gave the second dealer favorable terms and conditions, in the hopes that plaintiff's business would be destroyed. The court held that this constiuted a "constructive termination" of plaintiff's franchise without good cause. The court also held that plaintiff did not have to resign or actually be driven out of business before filing a claim under the NJFPA. It was enough that defendant attempted to constructively terminate plaintiff and that the scheme would have succeeded but for the plaintiff's lawsuit.