A major Hardee’s franchise operator has launched an aggressive legal challenge against the fast-food chain’s parent company, griping that the latter’s demand it keep its restaurants open past 2 p.m. would put them at risk of shutting down.
Paradigm Investment Group is accusing Hardee’s of employing “heavy-handed” tactics aimed at undermining franchise agreements and seizing profitable restaurants without justification.
At the center of the dispute are 76 Hardee’s locations in Alabama, Mississippi, Tennessee and Florida that could be forced to close if the company’s franchise termination effort succeeds.
Paradigm, the operator of those 76 locations, filed a lawsuit alleging that Hardee’s parent company, CKE Restaurants, is “acting in bad faith and threatening to steal a long-standing and well-performing franchisee’s investment.”
Paradigm says it has invested over $173 million into its restaurants and paid more than $87 million in royalties — only to now face termination over its refusal to implement digital services such as third-party delivery, online ordering and loyalty programs.
The franchise operator also refuses to keep all stores open until 10 p.m., with many closing by mid-afternoon. Hardee’s claims that these refusals violate system standards and justify termination.
Paradigm counters that the demands would destroy profitability and push it into bankruptcy.
A pivotal part of Paradigm’s lawsuit involves what it says was a misleading statement Hardee’s made to its bank. In 2022, Hardee’s told Midcap Financial Trust that Paradigm was in good standing with no unresolved violations.
Paradigm now says that if those problems existed back then, Hardee’s either misled the bank or “committed fraud in inducing the Midcap loan.”
Paradigm’s CEO, Don Wollan, sharply criticized the franchisor’s aggressive methods.
“Hardee’s was ramming things down our throat which weren’t in the franchise agreement,” Wollan told Franchise Times.
He warned of a dangerous precedent if franchisees accept these unilateral changes: “Once I let you shove it down my throat, I’ve created a precedent, and what would stop you from trying to force-feed every fee that you could imagine down to me?”
According to the lawsuit, Hardee’s imposed multiple undisclosed obligations and fees through amendments to the company’s operating manuals, circumventing franchise agreements and disclosures required by law.
Paradigm specifically cited a “Technology Fee,” a mandatory “Loyalty Program” where franchisees bear costs while Hardee’s retains valuable customer data, and a “Third Party Delivery” initiative that forces franchisees to pay royalties on delivery fees — considered an expense rather than revenue.
Paradigm claims these programs are financially burdensome and constitute deceptive practices, referencing Federal Trade Commission guidance that warns franchisors against imposing undisclosed fees.
Moreover, Paradigm alleges that Hardee’s enforces financially damaging operating-hour requirements, mandating that locations stay open until 10 p.m. despite customer traffic after 2 p.m. being “shockingly low.”
Paradigm states this directive risks financial insolvency, potentially triggering loan defaults and bankruptcy.
Interestingly, Paradigm argues that Hardee’s does not apply these stringent requirements to its own corporate-run stores, further highlighting the alleged inequity.
Paradigm asserts the deterioration began after Roark Capital acquired CKE in 2013, with Wollan noting the negative impact of constant leadership changes.
“Every time a new CEO comes in and wants to take some goofy risk or try something different that we instinctually know isn’t to work, we’re left pulling shrapnel out of our body for several years,” Wollan told Franchise Times.
The Post has sought comment from CKE.
Credit: Source link
