Subway's new 20-year franchise contracts mean the chain could take over stores if they close for snowstorms, power cuts, or terrorist attacks, legal experts said

Subway's new 20-year franchise contracts mean the chain could take over stores if they close for snowstorms, power cuts, or terrorist attacks, legal experts said
·3 min read
subway sandwich
Franchise stores that close for more than one day a year without permission, barring "an act of God," could be taken over by the company. Peter Summers/Getty Images
  • Subway franchisees could lose their stores if they close too many times under new contract rules, lawyers said.

  • The New York Post reported that closing because of a snowstorm, power cut, or terror attack could breach rules.

  • The contracts also bar franchisees from criticizing the chain.

  • See more stories on Insider's business page.

Subway's new, tighter rules for franchisees mean the sandwich chain could take control of franchise stores if they close during extreme events more than once a year, lawyers have said.

Franchise stores that close for more than one day a year without permission - barring "an act of God" - could be taken over by the company thanks to new contracts it started introducing in May, Insider's Kate Taylor and Nancy Luna reported.

This means that franchisees could lose their stores if they closed them multiple times because of a snowstorm, power cut, or terrorist attack, the New York Post reported, based on interviews with legal experts.

The new contracts also include clauses barring franchisees from criticizing the chain and requiring them participate in reward programs and marketing promotions - some of which, such as the $5 Footlong, have been a point of contention among franchisees.

Read more: Subway cofounder Fred DeLuca ruled the company like a demigod and pursued wives of franchisees. How one man sent the world's biggest fast-food chain into a tailspin.

The new contracts last 20 years and are being given out to new franchisees as well as existing ones whose contracts are expiring. If franchisees don't want to sign, their royalties rise to 10%, up from 8%.

Legal experts told The Post that "an act of God" just covers the most severe and unexpected of natural disasters, such as a flood or an earthquake, and is unlikely to cover events such as snowstorms, electrical outages, and terrorism.

"When I was a franchisee, my Subway was just outside the 9/11 frozen zone," Paul Steinberg, a lawyer and former New York Subway franchisee, told The Post. "Since terrorism would not be an act of God under NY law, if this new franchise agreement had been in effect, Subway could have taken my store."

A Subway spokesperson told Insider that the clause was "common to the franchise agreements of most brands in the QSR industry."

"As was seen throughout the COVID-19 pandemic, as well as the most recent February 2021 winter storms, Subway provided substantial support to its impacted franchisees and did not act unreasonably when it came to needed restaurant closures due to these unforeseen circumstances," it said. "Our priority is always to ensure our franchisees and their restaurant employees are safe."

Steinberg told The Post that when he was a franchisee he had planned to open his store every day but that this wasn't possible because staff didn't want to work on holidays such as Thanksgiving and Christmas "even at double or triple pay." He added that New York stores might have to close two days a year because of snowstorms.

Subway franchisees aren't happy about the new contracts, and some have threatened to close their stores.

"Franchises are desperate, livid, angry, frantic," a West Coast franchisee of more than two decades told Insider.

"I'll start systemically shutting them down," a franchisee in the Northeast told The Post.

Read more about all the "draconian" details in subway's new franchisee agreement here.

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