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DLA Piper Weighs In on Latest “Relationship” Legislation

In the 1990s, we witnessed efforts by franchisee rights advocates to introduce federal franchise legislation to protect franchisee interests in their relationships with franchisors. In connection with the FTC reviewing and amending the FTC Rule on Franchising, similar efforts were made to add a relationship component to the amended rule. These various efforts failed and we have been through a period of relative calm with respect to proposed franchise legislation.

However, in recent months we have seen a resurgence of legislative efforts – this time at the state level – that may change the playing field.  Whether it is due to the challenging economic environment, a perception that franchise agreements are more one-sided or other circumstances, these recent efforts seek to tilt the balance in favor of franchisees by restricting franchisor practices that are deemed unfair, protecting franchisees’ equity in their businesses and empowering collective actions by franchisee groups. 

While the proposals we are seeing at the state level vary greatly in terms of scope, they generally aim to (i) require that franchisors deal in “good faith” with their franchisees; and (ii) restrict the power of franchisors to terminate, not renew or deny consent to the transfer of franchise agreements without "good cause" (which is defined differently from state to state).  Some proposals have been withdrawn or postponed until the next legislative cycle, while others remain pending with state legislatures for review in the new year.

Given the differences between the proposed state bills and existing state franchise laws, the passage of such bills (in their current forms or in "hybrid" forms in the future) would generate a host of problems: if such bills are passed, there would be a number of resulting compliance issues, potential disputes over interpretation and required changes in current business practices of franchisors. Needless to say, any passed legislation would certainly have a significant effect on the contractual relationship between the franchisor and franchisee.

DLA Piper gives the status of proposed bills in Pennsylvania, Maine, Massachusetts and California in its FranCast news bulletin.


This article is co-authored by Abhishek Dubé, Associate DLA Piper of Northern Virginia. Mr. Dubé focuses his practice on international transactions related to franchising, licensing and distribution. He also works closely with both domestic and international clients on a variety of matters involving general corporate advice, contract drafting, negotiation, franchise planning, franchise formation (including master franchising, multi-unit licensing, area development and other structures) and mergers and acquisitions.

Mr. Dubé has helped clients with transactions in countries and regions that include Australia, Brazil, Canada, France, Hong Kong, India, Japan, Macau, Malaysia, Mexico, Pakistan, the Philippines, Singapore, South Korea, the UAE and the UK. Contact him at abhishek.dube@dlapiper.com

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About Erik Wulff

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Erik B. Wulff is a partner at DLA Piper in Washington D.C. Wulff has a broad-based practice in global brand expansion for consumer products and services companies. He has extensive experience in all aspects of representing clients in expanding their brands internationally and domestically through various collaborative forms, such as franchising, licensing, distribution, acquisition and joint venture arrangements. Mr. Wulff is a former member of the board of directors of a New York stock exchange-listed company and, as president of its international division, was instrumental in developing its business abroad. He can be reached at erik.wulff@dlapiper.com

DLA Piper’s Franchise and Distribution practice was recently recognized by US News & World Report as “Law Firm of the Year” in the Franchise Law category. It also received a tier one category ranking in Atlanta, Chicago and Washington, DC/Northern Virginia. The firm was also recognized earlier this year as the “International Franchise Law Firm of the Year” by Who’s Who Legal for the ninth consecutive year.

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