The Franchise Memorandum

In Wild v. H&R Block Tax Services LLC, AAA Case No. 77 114 266 10 (June 15, 2011), a panel of arbitrators upheld the termination of an H&R Block franchisee who had refused to convert to H&R Block’s proprietary tax return preparation software when Block made that software mandatory for all system offices. (Gray Plant Mooty represented the franchisor in this case.) Although the franchisee had been allowed to use other tax return preparation software for many years, the panel held that Block should not be penalized for its patience as it sought to convince its franchisees to voluntarily convert. Ultimately, the panel found that a franchisor has the right to adapt its polices, practices, and franchise operating requirements to changes in the marketplace.

The panel recognized that the franchisee’s failure to comply with Block’s updated policies required Block to take action to protect its franchise system. The panel focused on the franchisee’s inability to offer the full spectrum of services available in other H&R Block offices nationally as evidence of how Block’s valuable trademarks were being damaged by the franchisee’s actions. It also found unsupported the franchisee’s claim that Block’s new mandatory software would somehow jeopardize the privacy of her client’s tax information. Finally, the panel enforced the franchisee’s post-termination noncompetition agreement, finding that the franchisee had failed to provide evidence establishing that the provision was overbroad or unreasonable in any way.