While several states have franchise laws, many do not. If you live in a state that doesn’t have a franchise law, what does this mean for you? National franchisee lawyer Jeffrey M. Goldstein explains.
What State Franchise Laws Do
To understand what it means if your state doesn’t have a franchise law, we need to talk about what these laws do. Broadly speaking, state franchise laws fall into one of two categories:
- State Franchise Disclosure Laws – State franchise disclosure laws establish requirements similar to the Federal Trade Commission’s (FTC) Franchise Rule. The FTC’s Franchise Rule establishes the nationwide requirement for franchisors to provide a Franchise Disclosure Document (FDD) to prospective franchisees, and it includes specific requirements for each of the FDD’s 23 “Items.” In many cases, state disclosure laws also require franchisors to register their FDDs with the state; and, in some states, franchisors must go through a review and approval process before they can offer franchises for sale.
- State Franchise Relationship Laws – State franchise relationship laws establish prohibitions related to termination and non-renewal. While specific laws vary between states, these laws generally establish “good faith” or “good cause” requirements for terminating a franchise or refusing to renew a franchise upon expiration of the initial term.
Another key aspect of many state franchise laws is that they provide franchisees with a “private right of action” for statutory violations. This means that rather than relying on a government agency to enforce their franchisors’ obligations, they can take legal action against their franchisors directly when necessary. Some state franchise laws also include provisions for specific remedies, such as a right of rescission when a franchisor fails to make mandatory material disclosures.
What State Franchise Laws Don’t Do
While state franchise laws often provide important protections for franchisees, they only go so far. As a result, even in these states, franchisees will often struggle to hold their franchisors accountable for disclosure violations, wrongful terminations, wrongful non-renewals and other similar types of issues.
Additionally, state franchise laws do not force franchisors to comply. While franchisors are supposed to comply, they often don’t; and, even in states that require FDD registration, franchisors can (and often do) modify their FDDs after submitting their registration applications. As a result, state franchise laws are not safety nets, and franchisees in these states frequently face the same challenges as franchisees in other jurisdictions.
Your Rights If Your State Doesn’t Have a Franchise Law
With all of that said, if your state doesn’t have a franchise law, you still have clear legal rights as a franchisee. While enforcing your legal rights can prove challenging, there are means to do so, and an experienced franchisee lawyer can help you take appropriate legal action when necessary.
Regardless of where you own (or plan to own) a franchise, your legal rights as a franchisee include:
- The Right to Enforce Your Franchise Agreement – Regardless of any statutory protections that may or may not apply, you have the right to enforce the terms of your franchise agreement. If your franchisor violates your franchise agreement (i.e., by improperly refusing to renew or wrongfully terminating your franchise), you can hire a franchisee lawyer to help you enforce your franchise agreement in accordance with its dispute resolution provisions.
- The Right to Pursue Claims Under Your State’s “Unfair Practices” Laws – Even if your state doesn’t have a franchise law, it most likely has a general “unfair practices” or “unfair competition” law that applies to the franchise relationship. If your franchisor has violated your state’s “unfair practices” or “unfair competition” law, this may provide grounds to take legal action that are similar to those afforded under many state franchise registration and disclosure laws.
- The Right to Pursue Claims Under State or Federal Antitrust Laws – Antitrust laws prohibit franchisors and other businesses from engaging in various types of anti-competitive practices. If your franchisor is imposing an unlawful pricing restriction or engaging in any other type of practice that amounts to an unreasonable restraint on trade, you may have an antitrust claim.
- The Right to Pursue Common Law Claims for Fraud and Other Unlawful Practices – Along with statutory protections, franchisees in all states are entitled to many common law protections as well. For example, if your franchisor misled you into buying a franchise and you wouldn’t have bought had you known the truth, you may have a claim for common law fraud.
- The Right to Organize – Franchisees can often find strength in numbers. If you share complaints or concerns with other franchisees in the system, you have the right to come together as a group to seek to affect change or leverage your collective resources to pursue legal action. Even if your franchisor isn’t violating your franchise agreement or the law, if you are struggling to succeed as a franchisee, taking group action could be a viable solution.
In short, while owning a franchise in a state that has a franchise relationship or disclosure law can be helpful in some cases, this is not necessary to have (and assert) legal rights as a franchisee. If you need to know more about your legal rights or the legal options you have available, you should consult with a franchisee lawyer who has experience representing franchisees in your situation. An experienced franchisee lawyer will help you make informed decisions with your best interests in mind, and if engaging with your franchisor or taking legal action is the next step, your lawyer will be able to take all necessary and appropriate action on your behalf.
Need to Know More? Request a Free Consultation with National Franchisee Lawyer Jeffrey M. Goldstein
Do you need to know more about your legal rights or the legal options you have available? If so, we invite you to get in touch. Experienced national franchisee lawyer Jeffrey M. Goldstein can provide the advice, insights and representation you need. Call us at 202-293-3947 or contact us confidentially online to request a free initial consultation at Goldstein Law Firm.
