Kansas, Massachussets, and Small Business Franchise Act Compared

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