Bill > S2198

Introduced Session

This bill revises the "Franchise Practices Act" (the "Act") to increase protections for franchisees. Specifically, the bill removes a provision from the act that limits the act's application to a franchise where gross sales of products or services between the franchisor and franchisee covered by the franchise exceed $35,000 in the 12 months preceding a suit instituted under the act. Therefore, under the bill, the act would now apply to more franchise arrangements including "business format" or "package" franchises where the franchisor provides the franchisee with the business system, trade names, trademarks and advertising, but no sales occur between the franchisor and franchisee. Additionally, the bill provides certain rights and protections to franchisees that terminate or do not renew a franchise. Specifically, the bill provides that it is a violation of the act for any franchisor to restrict or prohibit a franchisee from terminating, cancelling, or not renewing a franchise provided the franchisee provides the franchisor with at least 60 days notice of such termination, cancellation, or failure to renew. In addition, the bill provides that it is a violation of the act for a franchisor, after termination, cancellation or non-renewal of a franchise, to: (1) require a franchisee to pay excessive damages; (2) require the franchisee to personally guarantee the debts of the franchise to the franchisor; and (3) impose any employment restriction on the owner or employees of the franchisee that exceeds six months duration and restricts employment outside the county in which the franchise is located. The bill also places a restriction on the ability of a franchisor to impose unreasonable facilities, financial, operating or other requirements upon a franchisee. A franchisor is also prohibited from requiring a franchisee to relocate his franchise or to implement any facility or operational modification more than once every five years, unless the franchisor can demonstrate that the franchisee will be able, in the ordinary course of business as conducted by such franchisee, to earn a reasonable return on the total investment in such facility or from such operational modification, and the full return of the total investment in such facility or from such operational modifications within 10 years. In some cases franchisors create relationships with third-party vendors that benefit the franchisor at the expense of the franchisee. The bill addresses this by restricting a franchisor from: (1) receiving a commission or any other payment from any vendor that sells goods or services to franchisees of the franchisor; and (2) requiring any franchisee to purchase goods or services from a vendor if the franchisor has not taken reasonable steps to secure the best possible price for the goods and services from the vendor. The bill also prohibits a franchisor from requiring a franchisee, as a condition for the approval of a renewal or transfer of a franchise, to assent to a general release from liability for the franchisor. In addition, the bill provides that if the franchise agreement provides that the franchisee has an exclusive territory, the franchisor is prohibited from competing with the franchisee in the exclusive territory or granting competitive franchises in the exclusive territory area previously granted to another franchisee. With respect to court claims regarding disputes arising with respect to the franchise, the bill prohibits a franchisor from requiring a franchisee to agree to a term or condition in a franchise, or in any lease or agreement ancillary or collateral to a franchise, which specifies the court in which a claim may be brought or otherwise prohibits a franchisee from bringing an action in a particular court otherwise available under the law of this State. Finally, the bill places a fiduciary duty on a franchisor to their franchisees concerning any funds collected by the franchisor from the franchisee to be used for advertising. The bill also requires franchisors to provide a report to the franchisee annually detailing how the advertising funds were used.

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Vin Gopal (D)*,  Bob Smith (D)*, 

Introduced in the Senate, Referred to Senate Commerce Committee (on 03/16/2020)