When franchisees review a franchise agreement, attention is usually drawn to the big-ticket items: fees, term, renewal rights and restraints. One clause that is frequently skimmed over—but can come back to bite franchisees in the bum—is the Minimum Performance Criteria clause.
Most franchise agreements include some form of minimum performance obligation. It may be labelled “Minimum Performance Criteria”, “KPIs”, “Performance Standards” or something similar. Whatever the name, the effect is the same: the franchisee is required to meet certain standards or hit specified targets as a condition of continuing to operate the franchise.
Understanding how these clauses work, and what happens if targets are not met, is critical.
What Are Minimum Performance Criteria?
Minimum Performance Criteria (MPCs) are benchmarks the franchisor uses to assess whether a franchisee is performing at an acceptable level within the system. Ideally, these criteria should be clearly defined and set out in the franchise agreement itself (or in a schedule attached to it).
In practice, however, we often see criteria buried in manuals, expressed vaguely, or capable of being changed by the franchisor over time.
Importantly, MPC clauses are rarely just “aspirational”. They are typically tied to enforcement mechanisms that allow the franchisor to intervene—and, in serious cases, to exit the franchisee from the system.
What Happens If the Criteria Are Not Met?
The consequences of failing to meet minimum performance criteria vary from agreement to agreement, but the structure is often similar.
The first step is usually the development of a remedial or performance improvement plan. This may require the franchisee to:
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meet with the franchisor to discuss performance concerns;
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undertake additional training or professional development (often at the franchisee’s cost);
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implement additional local marketing or promotional activity;
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address operational or compliance issues identified through audits; and
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report regularly to the franchisor on progress.
Following this, there is typically a monitoring period. Six months is common, though this varies by system. During this time, the franchisor will assess whether the franchisee has implemented the plan and whether performance has improved to the required level.
If the criteria are still not met at the end of that period—or if the plan is not implemented at all—the consequences can escalate. Depending on the agreement, this may include:
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a right for the franchisor to direct the franchisee to sell the business; or
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treating the ongoing failure as a breach of the franchise agreement, allowing the franchisor to issue a notice of intention to terminate.
This is why MPC clauses should never be treated as “background” provisions. They can directly affect business continuity.
What Do Minimum Performance Criteria Usually Relate To?
Minimum performance criteria vary from network to network, but we most commonly see them fall into three broad categories:
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Financial benchmarks
These may include minimum revenue, turnover or growth targets. In some systems, benchmarks are absolute; in others, they are comparative (for example, performance relative to network averages). -
Quality benchmarks
These often relate to operational audits, mystery shopper programs or system compliance scores. Franchisees may be required to achieve a minimum audit score or remedy identified deficiencies within a set timeframe. -
Customer feedback and reviews
Increasingly, we see criteria tied to online reviews, such as maintaining a minimum Google rating or responding to customer complaints within a prescribed period.
Each of these raises different risks, particularly where factors outside the franchisee’s control (location, demographics, system-wide issues) materially influence outcomes.
Due Diligence Before You Sign Is Critical
Franchisees should investigate minimum performance criteria before entering into the franchise agreement, not when they are already underperforming.
Useful due diligence questions include:
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What percentage of the network is currently meeting the criteria?
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Has the franchisor ever relied on the criteria to terminate a franchise or force a sale?
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How often are the criteria reviewed or changed?
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Do existing franchisees consider the criteria reasonable and achievable in practice?
Speaking to current and former franchisees can be particularly revealing.
Red Flags to Watch For
Certain features of MPC clauses should immediately raise concern, including:
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an unfettered or uncapped right for the franchisor to amend the criteria;
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criteria that apply automatically as a breach if not met, without any remediation period;
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vague or subjective benchmarks that could give rise to disputes; and
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criteria that are not transparently disclosed or are contained only in manuals that can be updated unilaterally.
These features significantly increase enforcement risk and reduce a franchisee’s ability to manage performance issues constructively.
Final Thoughts
Minimum performance criteria are not inherently unreasonable. Franchisors are entitled to protect system standards and brand reputation. However, poorly drafted or overly aggressive criteria can expose franchisees to disproportionate risk.
Understanding how these clauses operate—and obtaining advice from an experienced franchise lawyer before signing—can make the difference between a manageable performance framework and a clause that becomes a trigger for exit from the system.