Canadian chain Tim Hortons sued by U.S. franchisees

Coffee and donut chain Tim Hortons is facing another lawsuit from its U.S. franchisees. This suit alleges the company charges unreasonable fees for food and supplies and has unfair practices regarding how the franchisees sell their businesses.

Multiple lawsuits in multiple countries

The suit was filed by the Great White North Franchisee Association, a group that banded together amid growing anger among Tim Hortons franchise operators. AOL states in May, the same group also sued Tim Hortons’ parent company, Restaurant Brands International, challenging a part of the franchise agreement and had plans to file suit about how the company spent franchisees’ advertising fund money on unrelated expenses.

Canadian Tim Hortons franchisees also sued the company regarding misuse of money that was provided for advertising. That lawsuit is still pending.

Tim Hortons accused of price gouging its franchise owners

Since Tim Hortons controls the supply chain for its franchise owners, the new suit alleges the Canadian chain significantly overcharges for products that could be purchased cheaper from other companies. One example given is a case of Diet Coke. Restaurant Business states Tim Hortons franchisees must pay $75.31 a case, while Dunkin’ Donuts franchise operators pay $27.81.

The suit also states that if owners want to sell their restaurants, they must first offer Tim Hortons the ability to buy the spaces back for the price of the depreciated furniture, fixtures and restaurant equipment.

Right of first refusal usually includes another party

Though the right of first refusal is common in franchise agreements, typically the right includes an offer from a third party. This third-party offer may be used to negotiate a better offer for the property. By excluding a third party and insisting that the price be based on depreciation, the chain is setting itself up to buy back restaurants at a lower price, while ignoring any equity the owners may have built into the business.

The franchisees are accusing Tim Hortons of price gouging for the supplies and equity theft for the buyback agreement. The group states these practices qualify for breach of contract.

Examples of possible breach of contract include:

  • Failing to perform or provide a service on time
  • Does not perform service as outlined in the contract
  • Does not provide the service at all
  • Failing to pay for products or services
  • Stopping of work
  • Disputes over contract terms

The suit is still pending, but the group claims these practices have been so damaging that some of the U.S. franchises are no longer successful businesses.