Franchising: appeal court rules against franchisor over concept changes

Developing a concept does not remove the obligation to honour a franchise agreement. According to an analysis published on 20 October by Kohen Avocats, the Paris Court of Appeal ruled against a franchisor over changes imposed on a franchised restaurant without sufficient testing or support. For the franchise sector, the case sheds light on the distinction between adapting know-how and fundamentally altering it.

A restaurant faced with substantial changes

The case concerns a restaurant in Rouen, France, in which the franchisee had invested more than €500,000. During the term of the agreement, several elements of the concept changed: glass jars gave way to plastic packaging, then to frozen food, while self-service was replaced by staff-assisted sales.

These changes also brought an increase in the number of recipes to be assembled in a kitchen not designed for that way of working. According to the reported facts, staff did not receive the training needed for the switch to staff-assisted sales.

Turnover fell from January 2018. The franchisee company entered court-ordered liquidation in June that year. The franchisor itself went into liquidation in November 2023.

In its analysis, Kohen Avocats discusses a Paris Court of Appeal ruling dated 7 October 2026, drawing on a specialist press report dated 12 October. The firm notes that the judgment was not yet available in publicly accessible databases when its analysis was published. The details presented should therefore be read with that limitation in mind.

The agreement required prior testing

The decisive issue was the franchisor’s contractual commitments. The agreement made it responsible for adapting the concept, but stipulated that any improvements must first have been tested by the franchisor.

According to the report cited, this requirement was not met. The substantial changes were accompanied by neither an updated manual, nor training, nor a marketing plan. The court found that the original know-how had been fundamentally altered and that the breaches of the duty to provide support were serious enough to justify terminating the agreement on grounds of the franchisor’s fault.

This outcome does not prohibit franchise networks from evolving. It distinguishes adaptation in line with contractual commitments from changes introduced without testing or adequate support. In this case, the contractual requirement for prior testing was central to the court’s reported reasoning.

Another important distinction is that the claim to have the agreement declared void for lack of know-how at the time of signing was dismissed. The ruling therefore concerns the performance of the agreement, not its formation. Whether know-how existed at the outset and how it subsequently evolved are two separate questions.

Compensation that may prove difficult to recover

The reported awards include approximately €216,000 for the franchisee company’s financial loss. A further €72,000 was awarded for the loss of capital suffered by the couple operating the franchise, and €18,000 for that suffered by the three other shareholders.

An award of €80,000 also covers the financial loss suffered by the franchisees as guarantors of bank borrowing, corresponding to the sums demanded by the bank. The case thus illustrates how shareholders and guarantors who are not parties to the franchise agreement may obtain compensation for losses suffered personally under French non-contractual liability rules.

These awards do not, however, mean that the recipients will actually be paid. As the franchisor is in liquidation, the sums have been recognised as claims against its insolvent estate, and recovery is not guaranteed. Separately, approximately €100,000 in unpaid royalties and invoices was recognised as a claim against the franchisee company’s insolvent estate.

Guidance for managing changes across a franchise network

For those involved in franchising, this case underlines the importance of carefully reading clauses on concept changes, prior testing and support. It does not mean that every change constitutes a breach, or that every commercial difficulty provides grounds for termination.

The legal assessment depends on the commitments agreed, the changes made and the documents establishing their consequences. A franchisee who terminates an agreement unilaterally still faces risks if the seriousness of the breaches cannot be demonstrated.

Key takeaway: before making a significant change, document the testing, training needs and planned support. If a dispute arises, retain the relevant documents and have the agreement reviewed before withholding payments or taking steps to terminate it.