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Kansas, Massachussets, and Small Business Franchise Act Compared

National Franchise Association, Inc.
Comparison of Franchising Provisions
February 8, 2007

ISSUE

KANSAS

Responsible Franchise Practices Act

MASSACHUSETTS

Regulation of Franchise Agreements

[Draft– not yet introduced]

COBLE BILL

Small Business Franchise Act of 1999

 

1) Early Termination or Non-renewal by Franchisor only with Good Cause


 

 

 

 

(a) General Rule

·     A franchisor shall not unilaterally terminate a franchise agreement before the expiration of its term without good cause

·     RFPA §9(a) 

·     No franchisor may terminate, cancel or fail to renew a franchise except for good cause

·     RFA §1(a)

·     It shall be unlawful for a franchisor to terminate a franchise agreement prior to its expiration without good cause

·     SBFA §4(b)(1)

 

(b) Good cause definition

·     Failure to cure material breach after notice containing specific cure directives and reasonable opportunity to comply (see (1)(b) below)

·     Repeated breach after notice /opportunity to cure would be futile

·     Material misrepresentation in franchise application discovered within 1 year

·     Complete withdrawal by franchisor within state where franchise located

·      Cure period not required when:

·     Franchisee voluntarily abandons franchise for 5 consecutive days, unless due to natural disaster or cause beyond franchisee control

·     After reasonable notice, franchisee operates franchise in manner that imminently endangers public health and safety

·     Franchisee convicted of felony that materially impairs goodwill of trademark in relevant market (but franchisee has 90 days to transfer franchise)

·     Repeated breach after notice /opportunity to cure would be futile)

·      RFPA §9(c) and (e)

·     Includes, but is not limited to, franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the agreement

·     Exceptions:

1.        Refusal to participate in promotional campaigns for franchisor products

2.        Failure to meet sales quotas suggested by franchisor

3.        Refusal to sell at prices suggested by franchisor or supplier

4.         Refusal to operate during unprofitable hours if documented by franchisee as such and franchisee may set own hours between 10:00 p.m. and 6:00 a.m.

5.        Refusal to provide records to franchisor which are not necessary or related to franchisee obligations under agreement

·      RFA §1(a) and (d)

·     Failure to cure material breach within 30 days after notice specifying terms of agreement breached , or if breach cannot be cured in 30 days, failure to initiate and diligently pursue continuing cure actions

·     Voluntary abandonment of business (but not if out of franchisee control)

·     Franchisee convicted of felony, for which imprisonment of more than 1 year may be imposed, that materially impairs goodwill of trademark

·     Repeated default of same material provision; provided that franchisor enforces similarly with all franchisees

·     Franchisee operates franchise in manner that imminently endangers public health and safety

·     Withdrawal by franchisor from the area (but franchisor pays reasonable compensation for early termination and agrees in writing not to enforce prohibition that franchisee continues business at the location)

·     SBFA §4(b)

 

(c) Notice requirements

·     Written notice specifying precise basis for termination and the provisions of agreement breached

·     Must provide reasonable cure period of (1) no more than 30 days for monetary default and (2) no less than 30 days and no more than 90 days for non-monetary default

·     Must include offer to purchase inventory at higher of wholesale value or cost

·      RFPA §9(b)

·     Generally , franchisor to provide 60 days advance written notice specifying the cause

·     6 months notice required when franchisor elects not to renew a franchise which involves the lease by the franchisor to the franchisee of real property (subject to certain restrictions – See (1)(c) below))

·     Voluntary abandonment requires 15 days notice

·     If franchisee convicted of offense directly related to franchise business and punishable by over 1 year imprisonment, notice any time after such conviction

·     Notice of good cause for any reason must be given within 180 days from the date the good cause arises or the date the franchisor knew or should have known of the good cause

·      RFA §1(a)

·     Written notice specifying precise basis and provisions of agreement breached

·     Provides 30 day period to cure

·     No notice or opportunity to cure for abandonment, felony conviction, repeated default of same material provision, or franchisee operates franchise in manner that imminently endangers public

·     SBFA §4(b)(2)(B)

 

(d) Nonrenewal

·     Franchisor shall not refuse to renew for the purpose of converting to operation by franchisor or its employee, agent or affiliate

·     Franchisee is presumed to intend exercise of renewal right unless written notice to franchisor otherwise

·     Franchisor may not unreasonably refuse, delay or condition the renewal, but may require reasonable fee, training program, and update of facility to conform to standards for its new franchised businesses

·     Nonrenewal requires 6 months prior written notice by franchisor and must (1) be for good cause and other requirements for early termination as detailed above, (2) result from mutual agreement, or (3) franchisor withdraws from that market or ceases offering new franchises, in which case any post-term noncompete shall be null and void and franchisor shall not enforce any in-term noncompete for other franchises with the franchisee

·     RFPA §8

·     Limitation on nonrenewal when franchisor leases real property to franchisee.

·     Nonrenewal allowed only if franchisor sells or leases the  property to a nonaffiliate for any use, sells or leases to affiliate for use covered by franchise agreement, or franchisor converts the property from a person that is not the franchisee and the lease from such person is terminated or not renewed

·      RFA §1(a) and (c)

·     N/A

 

(e) Other

·     N/A

·     Right of both parties to submit good cause question to arbitration with right to appeal decision to court. 

·     RFA §1(f)

·     N/A

 

(2) Termination by Franchisee without liability or post-term obligations

·     Franchisor (or affiliate or subfranchisor) fails to cure breach of franchise or violation of Responsible Franchise Practices Act within reasonable time following notice from franchisee specifying the breach

·     Repeated breach by franchisor such that opportunity to cure would be futile

·     Franchisee is not released from  obligations to cease using intellectual property owned by franchisor or requirement to alter premises so as to avoid likelihood of confusion with former franchisor

·      RFPA §9(d)

·     N/A

·     N/A

 

(3) Termination / Non-renewal

Compensation

·     N/A

·     Except for voluntary relinquishment or abandonment, franchisor pays FMV of assets and goodwill, but not for assets unnecessary to conduct the business.

·     No compensation for goodwill required if franchisor gives 1 year notice and agrees in writing not to enforce noncompete

·     Franchisor may setoff against amounts owed by franchisee

·      RFA §1(b)

·     If Franchisor withdraws from marketing area, franchisor provides franchisee reasonable compensation for damages incurred from the shortened term of agreement

·     SBFA §4(b)

 

(4) Unilateral Rights of Franchisor to Change Terms of Agreement

·     Franchisor may not change the form of the agreement or the obligations of franchisee thereunder, whether through the agreement, operating manuals or other ancillary documents, if the change would alter material financial terms, operate to deprive the franchisee of the intended fruits of the agreement, or cause material detriment

·     The above changes are allowed if the franchisee willingly agrees or if negotiated between franchisor and an association

·      RFPA §4

·     N/A

·     N/A

 

(5) Franchisor designation of Sole Source Providers

·     Franchisor shall not prohibit franchisee from obtaining equipment and supplies from a provider of franchisee’s choosing provided that items meet uniform system-wide standards as to nature and quality and franchisor does not promulgate or enforce standards arbitrarily or discriminately

·     Requirement applies to all goods and services franchisee is required to obtain except for goods (1) actually manufactured for the franchisor , (2) solely for sale through franchisees and outlets owned by franchisor (3) which incorporate a trade secret owned by franchisor and (4) constitute or are an integral part of principal line of franchise system goods offered

·     Franchisor must provide and update approved list of vendors, and disclose rebates or consideration received by franchisor from the vendors as a result of purchases by third parties and how such funds were used, and total revenues franchisor earns or receives from other vendors from the sale of goods and services to franchisee and to all franchisees

·      RFPA §5

·     N/A

·     Franchisor shall not prohibit franchisee from obtaining equipment, fixtures, supplies, goods, or services from sources of franchisee’s choosing, except franchisor may require a reasonable established uniform system-wide quality standard

·     Exception - Franchisor may require franchisee to purchase certain equipment, fixtures, supplies, goods or services from franchisor or its affiliates if such supplies are central to the franchised business and incorporate a trade secret, patent, copyright, or other IP owned by franchisor or affiliate

·     If franchisor approves vendors, franchisor shall provide an updated inclusive list of approved vendors with no fewer than 2 vendors for each piece of equipment, each fixture, supply, good or service and shall evaluate and respond to requests by franchisees for approval of competitive sources of supply

·     Franchisor shall fully disclose whether or not it receives any rebates, commissions, payments, or other benefits from vendors as a result of purchases made by franchisee and shall distribute such benefits directly to franchisee

·     Franchisor shall report the amount of revenue and profit it earns from sale of equipment, fixtures, supplies, goods, or services to franchisees using GAAP at least annually

·    SBFA § 10

 

(6) Encroachment

·     Franchisor shall not establish or license a new outlet for goods and services similar to those of franchisee in a location proximate to franchisee so that the actual or probable effect is reduction in franchisee’s sales

·     Franchisee may make prima facie showing of violation by showing temporal correlation between establishment of new location and reduction of sales

·     Franchisor must establish and make available a policy  setting forth criteria used by franchisor in determining whether existing franchise is eligible for  an additional outlet or location.

·     Prior to establishing or licensing a new location, franchisor shall notify franchisees within 10 miles of proposed location

·     Franchisee shall have a cause of action for actual monetary loss from encroachment, costs of litigation and attorneys’ fees, and other appropriate relief such as injunction

·      RFPA §6

·     N/A

·     Franchisor may not place or license new outlets in reasonable proximity to an established outlet of similar kind of franchised business if (1) the intent or probable effect is to cause diminution of gross sales of established outlet of more than 5% in the 12 months following and (2) the established outlet offers goods and services identified by the same trademark as new outlet or the premises of the established and new outlets are identified by the same trademark

·     Exception – provision not applicable if before the new outlet is open for business the franchisor offers each established franchisee meeting above definition an amount equal to 50% of gross sales (net of taxes, returns and allowances) of the new outlet for the first 24 months of operation if the sales of the established outlet fall by 5% in the first 12 months following opening of new outlet

·     Franchisor has burden to prove that decline in sales of established outlet were for reasons other than new outlet

·      SBFA §11

 

(7) Choice of Law / Dispute Resolution

·     Provision requiring application of law of another state or requiring franchisee to mediate, arbitrate or litigate in a forum outside the state where franchise located is null and void

·     Provision placing limitation or exclusion on categories of damages or relief that franchisee may recover is null and void

·     Arbitrary limitation on amount of damages not allowed May not prohibit multi-party or class-wide litigation or arbitration

·     RFPA §16 and §17

·     N/A

·     Parties may agree to mediate, arbitrate, or other nonjudicial dispute resolution either before or after the dispute arises provided that the standards and protections applied are no less than provided in this law

·     Franchisee may commence civil action or arbitration proceedings within the jurisdiction where franchise business is located

·     No provision of an agreement may (1) deprive a franchisee of benefits of this law, any federal law or the laws of the state in which the franchisee’s principal place of business is located, (2) deprive franchisee from commencing action in the state of franchisee’s principal place of business, or (3) prevent franchisee from participating in class action 

·     SBFA § 12(c), (e), §6(c)

 

(8) Personal Liability/Private Right of Action/SOL

·     Franchisee has private right of action against franchisor or an affiliate or person acting on its behalf for actual damages, court costs, attorneys’ fees, expert witness fees in addition to other remedies

·     Imposes personal liability on every person who directly or indirectly controls a person liable to franchisee and employees of such person materially aiding in the violation unless such person otherwise liable proves no knowledge or reasonable grounds to know facts upon which liability alleged to exist

·     Statute of limitations is 4 years from when cause of action accrues

·     Association has standing to seek injunctive or declaratory relief on behalf of its members or in its own right

·     RFPA §18

·     N/A

·     A party to a franchise that is injured by a violation or threatened violation of this law or federal disclosure law shall have a right of action for restitution, rescission, damages, injunctive relief, including litigation costs, attorneys’ fees and expert witness fees in addition to other remedies

·     Imposes personal liability on every person who directly or indirectly controls a person liable to franchisee and employees of such person materially aiding in the violation

·     No action may be commenced pursuant to this Act more than 5 years after the date on which the violation occurs; or 3 years after the date on which the violation is discovered or should have been discovered

·    SBFA § 12(a), (b) and (d)

 

(9) Administrative Actions

·     The administrator is authorized to make rules and regulations to interpret and clarify the Act and to investigate possible violations

·     The administrator may bring an action against any person violating the Act to enjoin the violation, obtain injunctive relief, restitution, damages, or ancillary relief on behalf of persons injured

·      RFPA §19

·     N/A

·     The attorney general of any state may bring a civil action in district court on behalf of its residents to enjoin violations of this Act, obtain damages, restitution or other compensation and other relief as the court deems appropriate

·     State law is not preempted

·      SBFA §7

 

(10) Non-compete

·     Post-term noncompete is not allowed unless franchisor, within 20 days prior to termination or expiration, offers to purchase the franchise for FMV

·     For franchisee with multiple franchises of franchisor, an in-term noncompete provision with respect to continuing franchises shall not be enforced if it would hinder or prohibit franchisee from conducting business at the locations for which a franchise was terminated or not renewed, unless franchisor offered to purchase for FMV the terminated franchise at least 20 days prior to termination

·     FMV determined by independent appraiser, as if franchise sold or renewed as going concern for a period of years equal to the contract term being offered by franchisor to other new or renewed franchises

·     Forgiveness of debt is NOT considered a purchase of assets

·     This provision does not prohibit franchisor’s enforcement of post-term requirement that franchisee cease using intellectual property owned by franchisor (provided that ownership stated in agreement shall not be binding to a court), and franchisee alters appearance of premises and manner of operations to avoid likelihood of confusion

·      RFPA §10(a) – (c)

·     N/A

·     Post-term noncompete is not allowed

·     Agreement may include terms obligating a franchisee, after expiration or termination of a franchise, (1) to cease or refrain from using a intellectual property owned by the franchisor or its affiliates; (2) to alter the appearance of the business premises so that it is not substantially similar to the standard design of other franchisees using the same name or trademarks within the market area of the business; or (3) to modify the manner or mode of business operations so as to avoid any substantial confusion if such operations are unique to the franchisor and commonly in practice by other franchisees

·     After a transfer of a complete interest in a franchise, a franchisor may not enforce against the transferor a covenant of the franchise prohibiting transferor from engaging in  any lawful occupation or enterprise, except that franchisor can enforce covenant against transferor not to exploit intellectual property rights

·      SBFA § 4(c) and §8(i)(1)

 

(11) Right of Association

·     Franchisor may not, directly or indirectly prohibit or restrict right of franchisees to freely associate or form, join or participate in a trade association and shall not penalize, retaliate against or discriminate against a franchisee for same.

·      RFPA §12(a) and (b)

·     Franchisor may not prohibit right of free association among franchisees for lawful purpose

·      RFA §1(e)(1)

·     Franchisor may not hinder, prohibit, or penalize the free association of franchisees for any lawful purpose

·     SBFA §4(a)

 

(12) Indemnification / Warranty Responsibility

·     N/A

·     Franchisor must indemnify for claims against franchisee for defects in merchandise or methods or procedures prescribed by franchisor except for willful misconduct or negligence of franchisee

·     Franchisor must reimburse franchisee at prevailing retail price for services supplied or parts supplied by franchisee in satisfaction of franchisor’s warranty, and franchisor may not restrict franchisee from satisfying a warranty.

·     RFA §1(g)-(h)

·     N/A

 

 

·     Upon transfer of major portion of ownership, control, assets, interests in franchise agreements, or trademarks of franchisor, transferee franchisor assumes all obligations of transferor franchisor and franchisee may enforce against acquirer.

·      RFPA §11

·     N/A

·     Franchisor shall not transfer its interest unless it provides not less than 30 days notice to every franchisee of intent to transfer, such notice is accompanied by a complete description of business and financial terms of proposed transfer, and, upon transfer, the entity assuming franchisor’s obligations has necessary business experience and financial means to perform all of franchisor’s obligations in ordinary course of business

·     SBFA §9

 

(14) Franchisee Transfer

·      

·      

·      

 

(a) General rule

·     Franchisee may transfer if transferee satisfies reasonable qualifications of franchisor and franchisor required to show that any refusal to consent is not punitive, arbitrary or capricious

·      RFPA §7(a)

·     Franchisor may not prohibit transfer

·     RFA §1(e)(2)

·     Franchisee may transfer if transferee satisfies reasonable qualifications of franchisor and franchisor required to show that any refusal is not arbitrary or capricious

·     SBFA §8(a)

 

(b) Notice Requirement

·     Franchisee must provide 30 days written notice specifying transferee identity, qualifications and experience

·     Consent deemed given by franchisor unless withholds consent by written notice specifying reasons therefor and franchisee has reasonable period to address issues

·      RFPA §7(d) and (e)

·     N/A

·     Franchisee must provide at least 30 days written notice specifying the ownership interests of all persons holding or claiming an equitable or beneficial interest in the franchise subsequent to the transfer

·     Consent deemed to have been approved 30 days after notice given unless franchisor refuses in writing during that time

·     SBFA § 8(b) – (c)

 

(c) Reasonable requirements

      by franchisor

·     Reasonable requirements of franchisor include completion of transferee of reasonable training program, reasonable transfer fee for reasonable and actual expenses of franchisor directly related to transfer, payment to franchisor of amounts due and owing at time of transfer, and receipt of sufficient information for franchisor to determine whether transferee is qualified

·     Franchisor shall not require execution of a new agreement in connection with transfer for the remaining term of the agreement

·      RFPA §7(b) and (c)

·     N/A

·     Permissible requirements of franchisor include completion of transferee of reasonable training program, reasonable transfer fee for reasonable and actual expenses of franchisor directly related to transfer, payment to franchisor of amounts due at time of transfer, and financial terms of transfer comply with franchisor’s current financial requirements for franchisees

·     Franchisor may not condition consent on a franchisee’s foregoing existing rights other than those contained in the franchise agreement, a franchisee’s entering into a release of claims broader in scope than a counterpart release of claims offered by franchisor, or requiring franchisee or transferee to make capital improvements, reinvestments or purchase in an amount greater than franchisor could have reasonably required under franchisee’s existing agreement

·     Franchisee may assign franchisee’s interest for unexpired term of agreement and franchisor shall not require franchisee or transferee to enter into an agreement that has different material terms or financial requirements as a condition

·     SBFA §8(d)

 

(d) Limitation on consent right

·     No consent required, and no trigger of termination right or penalties for following transfers

·     Succession of ownership, upon death or disability of franchisee or owner of franchise, to spouse, heirs or a partner active in management of franchisee unless successor fails to meet reasonable qualifications within 1 year and enforcement of current qualifications is not punitive arbitrary or capricious.

·     Incorporation of proprietorship, but can require guarantee of individual

·     Transfer of less than controlling interest within an existing ownership group,  to spouse or children, or to ESOP or employee incentive plan if more than 50% held by persons meeting current reasonable qualifications

·     Grant or retention of security interest in the franchise if security agreement provides franchisor with notice of foreclosure and reasonable right to redeem

·     To the extent there is a consent right, refusal to consent may not be punitive, arbitrary or capricious

·     RFPA §7(f)

·     N/A

·     Franchisor may not withhold consent to franchisee, or owner of franchisee’s interest,  making a public offering of its securities without good cause if franchisee  retains control over more than 25% of voting power as franchisee

·     Franchisor may not withhold consent to a pooling of interests, to a sale or exchange of assets or securities, or to any other business consolidation amongst its existing franchisees

·     No consent required, no trigger of first right of refusal and no imposition of fees, payments, or charges in excess of franchisor’s cost to review the following:

1.        Succession of ownership or management upon death or disability of franchisee or owner of franchise to spouse, heir or partner active in management of franchise unless successor fails to meet reasonable qualifications within 1 year

2.        Incorporation of proprietorship, but can require guarantee of individual

3.        Transfer within an existing ownership group of franchise provided more than 50% of franchise held by persons who meet franchisor’s reasonable current qualifications

4.        Transfer of less than controlling interest to franchisee’s spouse or children provided more than 50% of entire franchise held by those who meet franchisor’s reasonable current qualifications

5.        Grant or retention of security interest in franchise if security agreement provides franchisor with notice of foreclosure and reasonable right to redeem

·     SBFA §8(f) – (h)

 

(15)

Discrimination

·     Franchisor may not discriminate on the basis of race, color, religion, gender, sexual preference, age beyond maturity, national origin or disability

·     Franchisor shall not be prohibited or restricted from adopting an affirmative action program to make franchise opportunities available to persons lacking capital, experience or other qualifications normally required

·     RFPA §7(c)

·     Franchisor  may not discriminate between franchises unless (A) necessary to allow a particular franchisee to fairly compete or (B) franchisor satisfies burden of proving that discrimination is reasonable, is based on franchises granted at materially different times, is reasonably related to the difference in times or other justifiable distinctions, and is not arbitrary

·     RFA §1(e)(8)

·     Franchisor may not discriminate against franchisee by imposing requirements not imposed on other similarly situated franchisees or otherwise retaliate, directly or indirectly, against any franchisee for membership or participation in a franchise association

·      SBFA §4(a)

 

(16) Intellectual Property Rights

·     Information constituting a trade secret arising out of the ownership or operation of the franchise by the franchisee shall be the property of the franchisee, and such ownership or character of information as a trade secret is not altered by franchisee reporting the information to the franchisor or a trade association in which franchisee is a member

·      RFPA §10(d)

·     N/A

·     N/A

 

(17) Anti-Fraud /Unfair Trade Practices

·     In connection with the advertising, offering, sale or other promotion of its franchises, it is unlawful for franchisor to employ any device or scheme to defraud, engage in conduct which operates as a fraud or deceit,  or obtain property by making an untrue statement of material fact or fail to state a material fact,  or represent that the franchise is endorsed by any federal or state governmental agency

·     In connection with presale disclosure document, it is unlawful for franchisor to make untrue statements, fail to state material facts, fail to furnish all information required by law, make a claim that is materially inconsistent with or contradicts disclosure documents, or make statements regarding profitability or success other than as allowed by law

·     Violation of FTC rule is violation of this law

·     RFPA §3 and §20

·     N/A

·     In connection with the advertising, offering, sale or other promotion of its franchises, it is unlawful for franchisor to employ any device or scheme to defraud, engage in conduct which operates as a fraud or deceit, or obtain property by making an untrue statement of material fact or fail to state a material fact

·     In connection with presale disclosure document, it is unlawful for franchisor to (1) make untrue statement of material fact, fail to state a material fact, ,or fail to state a fact that would make any required statement or disclosure misleading, (2) fail to timely furnish all information required by law and a written statement in 14 pt font whether franchise contains renewal right or (3) make a claim that is materially inconsistent with or contradicts disclosure documents law

·     SBFA §3(a)

 

(18) No Waiver of Rights by Franchisee

·     Provision which requires franchisee to assent to a release, assignment, novation or waiver relieving any person from liability under or compliance with this law is null and void except as contained in a bona fide settlement of a dispute expressed in writing and signed by a party to a franchise with advice of legal counsel.

·     RFPA §21

·     N/A

·     It is unlawful for franchisor to require any term or condition which directly or indirectly violates this law

·     Franchisor may not require franchisee to consent to a waiver, disclaimer, release stipulation or other provision that would (1) relieve any person from a duty imposed by this law, except as part of a settlement of a bona fide dispute or  (2)  protect any person against liability to which a person would be subject under this law

·     Franchisor may not require franchisee to assent to a release, waiver, stipulation or other provision which would prevent franchisee from making any oral or written statement relating to operation of the franchise system or franchisee’s experience

·     Any provision that purports to waive or restrict any right granted under the law shall be null and void

·      SBFA §6

 

(19) Additional Penalties for Violations

·     Civil penalty of at least $2,500 for each violation

·     Willful violations constitute severity level 5, nonperson felony

·     County or district attorney may institute criminal proceedings

·      RFPA §23

·     N/A

·     N/A

 

(20) Other  Miscellaneous

 

 

 

 

(a) Performance and management of franchisee

·     Franchisor shall not hold franchisees to a higher standard than  franchisor maintains for it own nonfranchised units

·     A franchisor that requires franchisees to maintain a positive relationship with franchisor as a condition of renewal, expansion, compliance or good standing must apply such requirements in a consistent and commercially reasonable manner with documentation of infractions by franchisees that violates the policy or endangers the image and goodwill of the trademark, and notice to franchisee with opportunity to cure before sanctions or prejudice is imposed

·     RFPA §13(c) and (e)

·     Franchisor may not impose unreasonable standards of performance

·     Franchisor may not require or prohibit change in management unless good cause and notice in writing

·     Franchisor may not impose unreasonable or unnecessary standard of conduct whether by contract, rule, or regulation and whether oral or written

·     RFA §1(e)(3), (4) and (7)

·     N/A

 

(b) Good faith and fair dealing

·     Both parties have a duty to act in good faith and shall do nothing to injure or destroy the right of the other  to receive expected fruits of the contract and such duty shall require honesty in fact and observance of reasonable standards of fair dealing in the trade

·     A court may find that a franchise was unconscionable when made or as employed

·     RFPA §13(b), (d)  and (f)

·     N/A

·     Both parties have a duty to act in good faith and shall do nothing to injure or destroy the right of the other  to receive expected fruits of the contract and such duty shall require honesty in fact and observance of reasonable standards of fair dealing in the trade

·     SBFA §5(a)

 

(c) Fiduciary duties

·     Franchisor owes a limited fiduciary duty to franchisees to exercise highest standard of care when performing (1) bookkeeping, collection, payroll or accounting services on behalf of franchisee, (2)  administering or supervising administration of an advertising or marketing fund to which the franchisee is required to make contributions fund, and (3) holding as custodian or escrow agent funds of current or prospective franchisee that are refundable

·     Funds administered on behalf of franchisees are to be kept in one or more segregated accounts and are not subject to claims of franchisor’s creditors

·     Franchisor shall have independent certified audit of funds, with opinion of auditor provided stating that funds comply with this section,  within 60 days after close of fiscal year

·     §RFPA §15

·     N/A

·     Franchisor owes a limited fiduciary duty to franchisees and is obligated to exercise highest standard of care when performing bookkeeping, collection, payroll or accounting services on behalf of franchisee; or administering, controlling or supervising advertising, marketing or promotional fund or program to which franchisees are required to, or routinely, contribute

·     Funds administered on behalf of franchisees are to be kept in one or more segregated accounts and are not subject to claims of franchisor’s creditors

·     Franchisor shall have independent certified audit of funds, including full disclosure of all fees, expenses or other payments from the account to franchisor or any affiliate, within 60 days after close of its fiscal year

·      SBFA § 5(c)

 

(d) Due care

·     Franchisor has duty of due care to exercise skill and knowledge normally possessed by franchisors similarly situated

·     Requirement may not be waived or abrogated by agreement or conduct except that franchisor may limit the nature and scope of its skill and knowledge

·      §RFPA §13

·     N/A

·     Franchisor has a duty of due care to exercise skill and knowledge normally possessed by franchisors similarly situated unless franchisor represents that it has greater skill or knowledge or conspicuously disclaims that it has skill or knowledge

·     Requirement may not be waived by agreement or conduct except that franchisor may limit the nature and scope of its skill and knowledge

·      SBFA §5(b)

 

 

NOTE 1

The above chart (the “Chart”) compares proposed bills introduced or which may be introduced in the legislatures of Kansas and Massachusetts, as well as the provisions of the Coble-Conyers bill that was introduced in the United States House of Representatives in the late 1990s.  The Chart is not intended to be any form of comment on the desirability of any of these bills or any advice as to how the National Franchise Association, Inc. should respond with respect to either of these bills.

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