Nationwide, 21 states and Washington D.C. have laws in place that govern the franchise disclosure process, the franchise relationship or both. Due to the heavily one-sided nature of franchising, these laws are designed to protect franchisees by helping ensure that they receive accurate information, and that they have at least some opportunity to protect their investment if things do not go as planned. The states that have franchise laws are:
- New Jersey
If your state has a franchise law, the implications for your franchise will depend on the type of law (disclosure, relationship or both) and the scope of its provisions. Franchise laws vary widely from state to state, and some provide significantly more protection than others.
Examples of State Franchise Law Provisions
1. Franchise Disclosure Requirements (and Consequences)
In states with franchise disclosure laws (i.e. California, Illinois and Maryland), franchisors must meet certain requirements in addition to those imposed under the Federal Trade Commission’s (FTC) Franchise Rule (the FTC Franchise Rule establishes the nationwide standard for the 23-item Franchise Disclosure Document (FDD)). One of the most-common provisions in these laws is an extension of the “cooling off” period before a franchisee can be asked to sign a franchise agreement.
Potential remedies for disclosure violations under state franchise laws can include an option to terminate the franchise; although, the circumstances in which this option is available are usually pretty limited.
2. Franchisor Terminations and Non-Renewals
State franchise relationship laws typically focus on ensuring that franchisees cannot be targeted in bad-faith terminations and refusals to renew. Another way some statutes tackle this issue is by stating that franchisors must have “good cause” to terminate a franchise.
3. Prohibitions on Unfair Franchise Agreement Terms
Some states’ franchise laws include provisions that prohibit franchisors from including certain unfair terms in their franchise agreements. Michigan’s law is a good example. In Michigan, the following types of franchise agreement provisions are unenforceable as a matter of law:
- Provisions that prohibit franchisees from joining franchisee associations;
- Provisions requiring franchisees to agree to releases, waivers or other terms that deprive them of rights and protections provided under the law; and,
- Provisions that permit the franchisor to terminate the franchise agreement prior to its expiration except for “good cause.”
As a practical matter, state franchise laws most commonly come into play during franchise arbitration and litigation. If your franchisor misrepresented information about the franchise opportunity or is pursuing a wrongful termination, you may be able to assert your state law protections in order to get out of (or stay in) your franchise. If you need more information about how your state’s franchise law protects you, we encourage you to contact us promptly for a free and confidential consultation.
Request a Free and Confidential Consultation With Franchise Lawyer Jeffrey M. Goldstein
To discuss your situation with franchise lawyer Jeffrey M. Goldstein, please call (202) 293-3947 or contact us online. We will arrange for you to speak with Mr. Goldstein as soon as possible.