States propose revising the ‘relationship’ between franchisors and franchisees

By Erik B Wulff and Abhishek Dubé

In the ‘90s, 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 favour 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 Some proposals have been withdrawn or postponed until the next legislative cycle, while others remain pending with state legislatures for review in the new year…

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