NASHVILLE — A Hardee’s franchisee has sued the restaurant chain after threatening to terminate the agreements at its locations.
Paradigm Investment Group filed suit last month in the Middle Tennessee U.S. District Court to halt the termination. Paradigm, a Nevada-based LLC, operates 76 Hardee’s restaurants in four states, with most in Alabama.
The company said it has been operating Hardee’s restaurants for more than 25 years, employing around 1,600 people and generating more than $1.6 billion in sales since 2001, according to court documents.
Paradigm is seeking $35 million in compensatory damages from Hardee’s, plus costs and attorney fees, as well as an injunction against terminating the agreements.
Part of the lawsuit concerned Hardee’s requirements for restaurants to be open from 6 a.m. to 10 p.m.
Paradigm said that requirement is financially damaging, saying post-lunch business is practically non-existent, noting that “many Hardee’s restaurants average less than 4 customers an hour after 2 p.m.”
It provided specific data for the Hartselle location in August 2021, when average sales were $19 per half hour after 2 p.m., compared to breakfast sales that averaged $239 per half hour.
“Due to the low customer counts after 2 p.m., many hours are unprofitable, as the labor alone required to staff each hour exceeds the sales that are generated,” Paradigm said.
Paradigm CEO Don Wollan criticized Hardee’s for being “heavy-handed” in requirements which he says were not in the original franchise agreement.
“Hardee’s was ramming things down our throat which weren’t in the franchise agreement,” Wollan told Financial Times. “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 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?” Wollan told the Times.
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.
In January, Hardee’s, a subsidiary of CKE Restaurants based in Franklin, Tenn., issued a notice of default to terminate all of Paradigm’s franchise agreements by April 15 unless Paradigm complied with several requirements, which Paradigm said it wouldn’t do because the requirements weren’t part of the original franchise agreements.
Hardee’s didn’t cancel the agreements after the lawsuit was filed.
The requirements include a “Technology Fee,” a mandatory “Loyalty Program” where franchisees bear costs while Hardee’s retains valuable customer data, a “Third Party Delivery” initiative that forces franchisees to pay royalties on delivery fees — considered an expense rather than revenue, and staying open until 10 p.m.
Paradigm said the closing hour requirement is impractical at many locations, citing the severe labor shortage in Alabama where only 39 workers are available for every 100 open jobs.
Paradigm also claims Hardee’s does not apply these stringent requirements to its own corporate-run stores and the requirements risk financial insolvency, potentially triggering loan defaults and bankruptcy.
CKE declined to comment on the lawsuit, citing ongoing litigation.
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