Illinois is one of relatively few U.S. states that have adopted both a franchise disclosure law and a franchise relationship law. These laws provide statutory protections to prospective and current franchisees; and, when franchisors violate these laws, franchisees have certain rights even if these rights are not spelled out in their franchise agreements.
But, as a franchisee in Illinois, asserting your statutory rights is not easy. As a result, if you believe that your franchisor has violated Illinois’s franchise disclosure or relationship law, you should discuss your situation with an experienced franchisee lawyer as soon as possible. Here, franchisee lawyer Jeffrey M. Goldstein provides an introduction to what prospective and current franchisees in Illinois need to know:
Illinois’s Franchise Disclosure Law: An Overview
Under the Illinois Franchise Disclosure Act, all franchisors offering franchises for sale in Illinois must register their Franchise Disclosure Documents (FDDs) with the Illinois Attorney General. To register their FDDs, franchisors must submit a packet to the Illinois Attorney General that contains an application form, a copy of their FDD, a copy of their franchise agreement, an auditor’s consent letter and various other forms of documentation.
Franchise examiners at the Attorney General’s Office review franchisors’ registration filings; and, in many cases, they will require franchisors to revise their FDDs before they will issue approvals. However, franchise examiners generally focus on completeness rather than accuracy; and, as a prospective franchisee, it is still up to you to verify all information contained in a franchisor’s FDD.
What if a franchisor violates Illinois’s franchise disclosure law? The Franchise Disclosure Act provides that, “Any person who offers, sells, terminates, or fails to renew a franchise in violation of this Act shall be liable to the franchisee who may sue for damages caused thereby. . . . In the case of a violation of Section 5, 6, 10, 11, or 15 of the Act, the franchisee may also sue for rescission.” Some examples of the grounds to sue for rescission under Illinois’s franchise disclosure law include:
- Selling a franchise without registering with the Illinois Attorney General;
- Failing to provide a prospective franchisee with the franchisor’s FDD at least 14 days before the franchisee signs a binding agreement;
- Selling a franchise through an unregistered franchise broker;
- Submitting a franchise registration application that contains false information; and,
- Engaging in fraudulent practices when selling a franchise (including, but not limited to, “mak[ing] any untrue statement of a material fact or omit[ting] to state a material fact”).
Importantly, while the Franchise Disclosure Act provides franchisees with the right to sue their franchisor in certain circumstances, restrictions apply. For example, Section 26 of the statute provides that, “[n]o franchisee may sue for rescission . . . who shall fail, within 30 days from the date of receipt thereof, to accept an offer to return the consideration paid or to repurchase the[ir] franchise . . . .”
Illinois’s Franchise Relationship Law: An Overview
Illinois’s franchise relationship law provides four primary protections for current franchisees. These statutory protections are also found in the Franchise Disclosure Act, despite its name. Under Sections 17, 18, 19 and 20 of the Franchise Disclosure Act, franchisees in Illinois are entitled to protections including:
The Right to Join a Trade Association
Section 17 of Illinois’s Franchise Disclosure Act provides that it is an unfair franchise practice for a franchisor “to in any way restrict any franchisee from joining or participating in any trade association.” This protection is intended to ensure that franchisees have the ability to band together to voice their concerns and hold their franchisors accountable.
Protections Against Discrimination
Section 18 of Illinois’s Franchise Disclosure Act provides that it is an unfair franchise practice for a franchisor, “to unreasonably and materially discriminate between franchisees operating a franchised business located in this State in the charges offered or made for franchise fees, royalties, goods, services, equipment, rentals or advertising services, if such discrimination will cause competitive harm to a franchisee who competes with a franchisee that received the benefit of the discrimination.” While there are certain exceptions to the statute’s anti-discrimination provisions, these exceptions don’t apply in the vast majority of cases.
Protections Against Wrongful Termination
Section 19 of Illinois’s Franchise Disclosure Act prohibits franchisors from terminating franchisees except for “good cause.” This prohibition applies even if the franchise agreement purports to allow termination on other grounds. The law defines “good cause” as:
- Violating a lawful provision of the franchise agreement and failure to cure the violation within a reasonable amount of time;
- Making an assignment for the benefit of the franchisee’s creditors (or making a similar disposition of the franchisee’s assets);
- Voluntarily abandoning the franchise;
- Being convicted of a felony or other crime that “substantially impairs the good will associated with the franchisor’s trademark;” or,
- Repeatedly failing to comply with any lawful provisions of the franchise agreement.
Protections Against Wrongful Refusals to Renew
Finally, Section 20 of Illinois’s Franchise Disclosure Act prohibits franchisors from refusing to renew their franchisees’ franchise agreements in certain circumstances. These circumstances include: (i) the franchisee is bound by a post-termination non-competition covenant; or (ii) the franchisor has not provided at least six months’ notice of its intent not to renew. To comply with Section 20, franchisors must either allow renewal in these circumstances (subject to compliance with the applicable terms of the franchise agreement) or else compensate the franchisee, “either by repurchase or by other means for the diminution in the value of the franchised business caused by the expiration of the franchise.”
Discuss Your Options in Illinois with Franchisee Lawyer Jeffrey M. Goldstein
If you have questions about your legal rights as a franchisee in Illinois, we encourage you to contact us promptly for more information. We will arrange for you to speak with franchisee lawyer Jeffrey M. Goldstein in confidence as soon as possible. To request a free initial consultation at the Goldstein Law Firm, call 202-293-3947 or tell us how we can reach you online today.
