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Franchise Relationship Laws

Post-sales franchise relationship laws

A franchise relationship law is a law that aims to curb abuses of the franchise relationship. It is called a post-sales as opposed to pre-sales regulation. A pre-sales requirement is one of disclosure in which franchisors are asked to self-report information about itself on a template called the franchise disclosure document to inform would-be franchise buyers about its business. Franchise relationship laws, on the other hand, regulate the contractual relationship on what a franchisor can lawfully make a franchisee do.

No franchise relationship law exists at the national level.

The International Franchise Association was formed in 1960 by a group of restaurant and other business-format franchisors to stop such attempts after automobile dealers (franchisees) succeeded in enacting relationship laws that affected them. The last attempt was the Small Business Franchise Act in 1999, supported by Chicago-based American Franchisee Association and other franchisee advocates. A federal franchise relationship law of general application was proposed as early as 1971. Despite no federal relationship law, state franchise laws have grown in abundance, often pushed by motivated individual franchisees and franchisee associations.

Here’s a good overview of State Franchise Relationship Laws by franchise attorneys Tom Pitegoff and W. Michael Garner.

  • Wisconsin Fair Dealership Law (pdf), Wisconsin’s law is protective of its franchisees from termination and for dispute resolution within the state.
  • Iowa Franchise Investment Act gave franchisees the ability to pass on minority shares of their franchised business to their children. Such maneuvers were grounds for franchise termination in the past. Franchisees also pushed for the right of first refusal of an encroaching franchise to make sure that a franchise sold next door didn't eat into the business of the original franchise (See Iowa's General Business Franchise Law, pdf). Franchisors and the association that they established in 1960, the International Franchise Association, vehemently objected, declaring that franchises would run out of the state enmass.
  • Rhode Island Fair Dealership Act (S 2592 of 2008). Rhode Island gas station and restaurant franchisees complained to their state representative of shady franchise practices that they had endured. Their representative began drafting a bill that Massachusetts-based Dunkin' Donuts Independent Franchisee Association got wind of since their thousands of franchisee members were experiencing similar problems. D.C.-based Coalition of Franchisee Associations joined in the effort. DDIFO shaped and supported the bill and it was quietly passed. DDIFO is a member of the Coalition. The International Franchise Association lobbied to repeal the bill. It was able to make a slight ammendment to the existing law for franchisees to now be allowed only 60 days to cure an infraction of franchise standards before being terminated as opposed to 90 days before the amendment.

Pending state franchise relationship bills:

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