Contributed by Jerry Cook
In 1997, the franchise community received a surprise from the U. S. Supreme Court with the decision in State Oil v. Kahn. Suddenly, vertical maximum price fixing was no longer per se illegal. As franchise agreements caught up to this about-face over the years, franchisors began to issue agreements that required franchisees to honor special promotions, customer loyalty programs and similar marketing initiatives. If requiring a maximum price in a vertical distribution arrangement was no longer per se illegal, then neither would requiring a minimum discount be illegal. We could assume the days of “available at participating retailers only” were numbered. Well–not necessarily.
Super 8 Motels had a generation of franchise agreements that specifically required franchisees to participate in the Super 8 VIP Club. Super 8 VIP Club members received a 10% discount on the room rate. Those franchise agr
eements also called for ongoing fees of $100 per room in excess of 120 rentable rooms, 4% of gross room sales and contributions of 2% of gross room sales to the “Super 8 Advertising Reservation Fund”.
After Super 8 Motels became part of the Wyndham Hotel Group, Super 8 instituted a new customer loyalty program called “TripRewards” to replace the VIP Club. TripRewards were honored by all members of the Wyndham Hotel Group which included several well known hotel chains besides Super 8. To fund the program, the franchisor charged the franchisees a 5% fee on any motel room reserved by a member of the TripRewards Program. Instead of the franchisee providing a 10% discount on the room to VIP Club members, the franchisee paid the franchisor 5% of the room rate for TripRewards members.
A Super 8 franchisee from Winnipeg, filed a class action contending that the imposition of the 5% fee was more than just another customer loyalty program. Collecting the fee was also a breach of the franchise agreement because the program imposed an additional fee not stated in the agreement or the disclosure document.
Super 8 Motels defended on general provisions in the agreements (a) that granted Super 8 discretion to revise the Super 8 system to adapt to new economic climates, (b) that stated rules of operation (which mentioned the VIP Club) but gave the franchisor discretion to modify and change the rules of operation and (c) that the franchisor may require franchisees to adhere to uniform system standards. Thus, the Super 8 System and operating rules now included the TripRewards program. Note that these are similar to the general provisions contained in most franchise agreements whereby franchisees agree at the time of signing to allow the franchisor to change certain rules later.
The Court believed that all the clauses allowing the franchisor to modify the system etc. did not justify charging the franchisees an additional 5% fee for 
participation in the TripRewards program. The Court seemed especially bothered by the fact that the franchisees continued to pay the 2% advertising fee to promote the system, so that in realty, now they were paying a 7% fee.
Maybe better drafting (with the benefit of 20/20 hindsight) would have solved this issue. But for now, requiring franchisees to give their customers a benefit for customer loyalty is still fine, but charging the franchise an additional fee to honor the program is not. Even though requiring the franchisees to honor these kinds of programs is now no longer illegal, implementing new programs through the franchise agreement can still be a challenge.