Like many states, Pennsylvania has not enacted a franchise law that protects franchisees. If you are thinking about buying a franchise in the Commonwealth, what does this mean for you? Pennsylvania franchise lawyer Jeffrey M. Goldstein explains.
How State Franchise Laws Protect (and Fail to Protect) Franchisees
Before we talk about franchisees’ legal rights in Pennsylvania, it is important to understand what it means (and what it doesn’t mean) when a state has a franchise law on the books. Broadly speaking, state franchise laws fall into two categories:
- Franchise Disclosure Laws – State franchise disclosure laws require franchisors to include certain information in their Franchise Disclosure Documents (FDDs). They also require franchisors to register their FDDs with a state agency in many cases. When franchisors violate these laws, franchisees’ legal rights vary from seeking minimal (if any) remedies to seeking rescission of their franchise agreement.
- Franchise Relationship Laws – State franchise relationship laws impose certain requirements and restrictions on franchisors once a franchise agreement has been signed. Common provisions include requirements to engage in good faith and fair dealing and prohibitions on terminating franchisees without cause. The remedies available to franchisees vary under these laws as well.
While state franchise laws provide some protections to franchisees, as a practical matter, their impact is often minimal. Additionally, even when a state franchise law doesn’t apply, other protections are still available—and, as a franchisee (or prospective franchisee) in Pennsylvania, understanding these protections is critical for making informed decisions.
Franchisees’ Legal Rights in Pennsylvania
Since Pennsylvania hasn’t enacted a franchise law, what protections are available to franchisees in the Commonwealth? The protections available to franchisees in Pennsylvania include:
- The Federal Trade Commission (FTC) Franchise Rule – The FTC Franchise Rule establishes the requirement for franchisors to provide an FDD to their prospective franchisees. It also outlines the specific disclosure requirements for each “Item” of the FDD, and many state franchise disclosure laws largely mirror the FTC Franchise Rule’s requirements.
- The Terms of Your Franchise Agreement – While franchise agreements are almost always heavily one-sided in favor of the franchisor, franchise agreements do provide some protections to franchisees. The specific protections available to you will depend on the terms of your franchise agreement—including any terms you and your Pennsylvania franchise lawyer negotiate during the buying process.
- Non–Franchise-Specific State Laws – Although Pennsylvania doesn’t have a state franchise law, it still has laws that protect franchisees in certain circumstances. For example, like most states, Pennsylvania has antitrust laws and unfair business practice laws that franchisees can use to take legal action against their franchisors in some cases.
- Court Decisions Protecting Franchisees (Pennsylvania Common Law) – Like other states, Pennsylvania also has a substantial body of court decisions (called “common law”) that apply to disputes between franchisors and franchisees. While some of these decisions are more favorable to franchisees than others, if you have a dispute with your franchisor, examining the relevant common law will be a key first step toward assessing your legal rights.
Even though franchisees in Pennsylvania have protections available, asserting these protections isn’t easy. Franchisors (and their defense lawyers) will vigorously dispute franchisees’ claims, and, in most cases, franchisees will need to pursue mandatory mediation or arbitration (or both) in the city where their franchisor’s headquarters are located. With that said, if you encounter a dispute with your franchisor, you should not assume that all hope is lost. Instead, as with all other franchise-related matters, you should work with your Pennsylvania franchise lawyer to ensure that you are making informed and strategic decisions.
Protecting Your Legal Rights When Buying a Franchise in Pennsylvania
With all of this in mind, what can (and should) you do to protect your legal rights when buying a franchise in Pennsylvania? Here are some key considerations:
1. Determine if the Franchisor’s FDD Complies with the FTC Franchise Rule
Your Pennsylvania franchise lawyer will be able to help you determine if the franchisor’s FDD complies with the FTC Franchise Rule. While violations of the FTC Franchise Rule don’t necessarily give franchisees grounds to pursue legal action, if a franchisor’s FDD is non-compliant, this can often be a sign that it is best to consider another franchise opportunity. As a franchisee (or prospective franchisee), protecting yourself is often just as much about avoiding legal risks as taking legal action, if not more.
2. Work with Your Lawyer to Negotiate Key Terms in Your Franchise Agreement
As we mentioned above, franchise agreements tend to be heavily one-sided in favor of the franchisor. With this in mind, negotiating reasonable protections into your franchise agreement can be extremely important. An experienced Pennsylvania franchise lawyer will be able to identify the provisions in the agreement that your franchisor is (and isn’t) likely to negotiate and propose reasonable alternate language on your behalf. If desired, your lawyer can negotiate directly on your behalf as well.
3. Make Sure You Know When You Can (and Can’t) Take Legal Action
Finally, when you buy a franchise in Pennsylvania, it is important to make sure you know when you can (and can’t) take legal action. What specific rights do you have under your franchise agreement? Does your franchise agreement require mediation or arbitration (or both)? Does your franchise agreement impose a deadline for asserting claims against your franchisor?
These are all extremely important questions that prospective franchisees need to consider during the buying process. Even if the answers don’t ultimately influence their decision, knowing their options will help them make timely and informed decisions as franchisees in the future.
Request a Free Consultation with Pennsylvania Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about buying a franchise in Pennsylvania? If so, we encourage you to contact us for more information. We provide several flat-fee franchise business review options for prospective franchisees. To discuss your options with Pennsylvania franchise lawyer Jeffrey M. Goldstein in confidence, please call 202-293-3947 or tell us how we can get in touch online today.
