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Protection After the Purchase, State Franchise Relationship Laws

Sixteen states have laws that protect franchisees from certain unfair and capricious acts by a franchisor during its relationship with its franchisees. These laws are generally known as franchise relationship acts, and usually govern such matters as the parties' rights regarding termination and non-renewal. The following states have such statutes: Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, Washington, and Wisconsin. Other states have similar but less inclusive laws, including the District of Columbia, Puerto Rico and the Virgin Islands, which have statutes that govern the termination of franchises, and South Dakota and Virginia, which have statutes that may restrict a franchisor's discretion in refusing to renew a franchise.

Relationship laws seek to balance the playing field between business-savvy franchisors which often have a league of lawyers drafting the franchise agreements, and the inexperienced franchisees, which often are unrepresented by counsel when signing a franchise agreement on a take-it-or-leave-it basis. Such statutes may override some provisions contained in franchise agreements regarding termination and non-renewal, by providing that franchisors must give certain "notice" periods and must have "good cause" for terminating and/or not renewing a franchise agreement.

For example, the California Franchise Relations Act (CFRA) provides: "... no franchisor may terminate a franchise prior to the expiration of its term, except for good cause. Good cause shall include... the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable cure the failure." (Cal. Bus & Prof Code, § 20020.) With respect to non-renewal, the CFRA provides that the franchisor must provide the franchisee with 180 days prior notice of its intention not to renew, and must meet certain other requirements and restrictions. (Cal. Bus & Prof Code, § 20025.)

Many of the state franchise relationship acts contain anti-waiver provisions and provisions which allow a franchisee to litigate in their home state rather than in the franchisor's state, even when the franchise agreement contains a venue/jurisdiction clause.

Depending on the state, the various remedies available to franchisees who have been wrongfully terminated, or whose franchisor wrongfully refused to renew the franchise, may include: (a) an order compelling the repurchase of inventory, payment for goodwill; (b) injunctive relief against termination; c) damages in the form of lost profits, expenses and punitive damages; and, (d) attorney's fees. Available remedies vary from state to state, and an experienced franchise law attorney will be able to advise you of your rights given the facts of your case and the applicable laws. Even if your state does not have a franchise relationship act, you may have common law causes of action which could protect your rights against wrongful termination or failure to renew, including breach of contract, breach of the covenant of good faith and fair dealing, unfair business practices, and negligent and intentional misrepresentation.

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About Mario Herman

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Based in Washington D.C, franchisee attorney Mario Herman represents franchisees domestically and internationally in negotiation, mediation, arbitration, and litigation with their franchisors. Mr. Herman affiliates with local counsel on an as needed basis. He has practiced nationally and internationally for twenty five years, has an excellent reputation, and has very reasonable rates.

Mario Herman's column is syndicated to Blue MauMau by permission of the author. His insights and information are also available at franchise-law, and International Franchise Law.

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Franchise Operations