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Constructive termination is a legal theory, first developed in the context of employment law, under which a plaintiff is permitted to pursue a claim that the defendant has "constructively terminated" the employee by making working conditions so intolerable that continued performance of the job is extremely difficult or impossible. A key legal question under this theory is whether plaintiffs are required as an essential element of the claim to show that they had ended the contractual or employment relationship, or alternatively whether it was sufficient to demonstrate something short of an actual end to the relationship, such as intolerable working conditions or severe hindrance to continued contractual performance.
In Mac's Shell Service, Inc. v. Shell Oil Products Co.,1 the U.S. Supreme Court held that a franchisee of a petroleum marketing franchise could not state a claim under the Petroleum Marketing Practices Act (PMPA) for constructive termination unless and until it went out of business or was denied the right to use the franchisor's trademarks, buy its fuel, or occupy station premises it owned. The decision reversed a First Circuit opinion that had affirmed a jury verdict on a PMPA claim in favor of Shell franchisees that had objected to the termination of a rent subsidy program. The franchisees continued to operate their stations, but asserted claims for constructive termination and constructive nonrenewal based on Shell's unilateral termination of the rent subsidy.2 The decision overruled lower federal court decisions that allowed petroleum franchisees to bring constructive termination or constructive nonrenewal claims under the PMPA even when they continued to operate their franchises.3
This article examines the impact that Mac's Shell has had on constructive termination claims in franchise litigation. Part I begins by examining cases brought under the PMPA that have asserted constructive termination claims after Mac's Shell was decided and finds no surprises in the lower federal courts' decisions enforcing the Supreme Court's strict interpretation of a claim for constructive termination. In Part II, the article discusses franchise cases that apply Mac's Shell outside the context of PMPA litigation, finding some decisions under state statutes and common law that have enforced the Mac's Shell requirement that a constructive termination plaintiff must cease doing business in order to bring a claim, but noting that many cases...