Legal Consequences of Implementing the Exoneration Clause in Franchise Contracts: Balancing Principles

DOI

10.2991/978-2-38476-352-8_28How to use a DOI?

Keywords

Exoneration clause; Balance Principle; Franchise contracts

Abstract

The rise of the franchise business model opened the door for many new opportunities as well as challenges for franchisors and franchisees alike. Importantly, franchise contracts also included exoneration clauses that sought protection for franchisors in some cases. Abstract: This paper aimed at inspecting the legal implications of the insertion of exoneration clauses by franchise contracts, more specifically the balance doctrine. The principle of balance was then the basic legal meaning aiming to maintain equal weight between two contracting parties. This research examined whether the addition of exoneration clauses in franchise agreements influenced the equilibrium of franchisor rights versus franchisee obligations. The article attempted to discuss the legal problems of exoneration clauses through an extensive and critical review of case law, legislation and academic literature, claiming that certain types of exoneration clause are capable of shifting the risk and liability burden unfairly onto the franchisee, are able to do so in a way that is contrary to the good faith and fair dealing expectations under U.S. law with regard to franchises, raise vexing issues related to unconscionability and undue influence, and create unnecessary complications for enforcement and judicial interpretation. This study did not stop at examining the standard franchise agreements, which are already influenced by unequal bargaining positions, often leading to an intrinsic imbalance from which the exoneration clauses cannot be disentangled. Such clauses caused many franchisees to suffer large losses, while providing substantial profits to the franchisors. Based on these findings, it was reasoned that if a franchise agreement is void of the requisite terms and conditions because an exoneration clause was present, the franchise agreement is void and could be canceled. In conclusion, the paper said the enforcement of all the interests should be balanced with the values of franchisees’ rights, and that the intrinsic inequality of bargaining power in franchise arrangements should be taken into account. Stakeholder-held recommendations were then made as to how exoneration clauses should be implemented to ensure that such implementation adheres to the balance principle, and continues to foster fairness within the franchise ecosystem.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Suhaila Zulkifli
AU  - Teguh Prasetyo
AU  - Elvira Fitriyani Pakpahan
AU  - Willy Tan Jaya
PY  - 2025
DA  - 2025/01/21
TI  - Legal Consequences of Implementing the Exoneration Clause in Franchise Contracts: Balancing Principles
BT  - Proceedings of the 5th International Conference on Humanities and Social Science (ICHSS 2024)
PB  - Atlantis Press
SP  - 340
EP  - 348
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-352-8_28
DO  - 10.2991/978-2-38476-352-8_28
ID  - Zulkifli2025
ER  -