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Ohio Passes Law to Protect Franchisees

COLUMBUS, Ohio — Ohio has passed a law that goes beyond many other states in its attempt to curb abusive franchising practices. The revised Ohio Business Opportunity Law protects the state's franchisees' right to sue a franchisor for false or untimely disclosure, ensures that Ohio law reigns supreme and attempts to safeguard that disputes be resolved in Ohio, not elsewhere.

"The Ohio revisions provide some very important and valuable rights and benefits to Ohio franchisees," says Robert Purvin Jr., chairman of the American Association of Franchisees and Dealers, a 20-year-old franchisee group that seeks to curb abusive franchise contracts.

Ohio franchisees empowered to sue for inaccurate disclosure statements

The new law in Ohio, a state that does not require the registration of disclosure documents by franchisors, is unusual. Its franchisees can sue a franchisor for errors in the Franchise Disclosure Document, excluding typographical errors.

A key architect of the amended Business Opportunity Law, attorney Stanley Dub of Ohio, explains how it helps remedy one of the country's greatest franchise weaknesses. "The Ohio law, like several other state laws, gives franchisees the right to sue for violation of disclosure laws without proof of fraud," says Dub. The Ohio attorney stresses that federal law, in contrast, does not give injured franchisees the right to sue when a franchisor provides false claims or otherwise violates franchise disclosure rules.

By federal government mandate, Franchise Disclosure Documents cover 23 items, such as the background of key personnel, litigation history and store earnings. The information is not monitored by the government.

"The Ohio law provides purchasers with various remedies for violations of the FTC rule [the regulation that requires Franchise Disclosure Documents], including rescission [termination from the obligations of the contract], triple damages and attorney fees." states Dub.

Ohio franchisees can count on their state law reigning supreme

The law also states that disputes between franchisors and franchisees come under Ohio laws, even if a franchisor requires an in-state franchisee to sign a franchise agreement that mandates that a franchisor's out-of-state laws supersede those of all other states. It also covers out-of-state franchisees who sign agreements that specify Ohio law.

"The consensus is that language will protect franchisees from out-of-state forum selection in cases of litigation," confirms attorney Dub.

Some attorneys say that the state will be able to demand Ohio law be used, but caution that the local law may not always work in a franchisee's favor. It is possible that a franchisor's out-of-state law may prove to be more protective of a franchisee on a given dispute. But Robert Purvin Jr., author of The Franchise Fraud: How to Protect Yourself Before and After You Invest, thinks the new requirement is overall a reasonable one. "The franchisor has chosen to do business in Ohio, and it is proper that Ohio has the right to dictate the law [its law] applying to its citizens," says Purvin, who also is chair of the American Association of Franchisees & Dealers (AAFD).

"AAHOA supports legislation that promotes fair franchising and helps to level the playing field between franchisors and franchisees," says Fred Schwartz, president of the Asian American Hotel Owners Association, a group whose members own nearly half of the hotel properties in the United States. "We are glad to hear that Ohio legislators are taking a closer look at the concerns of franchisees by providing greater protections and remedies for violations of disclosure laws."

Ohio aims to protect its franchisees by keeping arbitrations in-state

Last autumn's amended Ohio Business Opportunity Law also requires that arbitration between franchisors and franchisees take place inside Ohio. That provision sparks debate in legal circles on how enforceable it is. Some franchise attorneys think that Ohio's requirement that arbitration take place within the state might be preempted by federal law, which favors what is printed on the signed contract. There is a fear that the new Ohio law could give franchisees a false sense of security about arbitration protection that may not be realistic. They also fear that the conflict between the Ohio statute and federal law on where arbitration should take place might lead to substantial wasted resources expended over whose law prevails.

Dub says that the law will protect franchisees if a franchisor tries to pull an Ohio franchisee to a court out of state. But when it comes to the state being able to keep arbitration hearings within the boundaries of Ohio, he states, "The law is not clear."

Keith Miller, chairman of the Coalition of Franchisee Associations, a lobbying group that represents franchised business owners of some of America's largest chains — including Burger King, Subway, 7-Eleven and others — applauds the efforts by the lawmakers of Ohio. "2012 was a reawakening across the country for the need to balance the franchise industry with legislation introduced in Massachusetts, California, and Vermont," says Miller. "Coupled with our efforts on educating lawmakers on franchisee issues through the Universal Franchisee Bill of Rights, additional activity is taking place in 2013. Lawmakers are being constantly reminded that it is the franchisees that invest and employ in their states and districts. And, unlike a well regulated security, franchisees are risking much more than their initial investment. Requiring proper disclosure and providing franchisees better legal remedies will help provide protections that strengthen the franchise industry by encouraging more franchisee investment."


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Ohio's Revised Business Opportunity Act 20121.03 MB
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