In 2011, members of the Coalition of Franchisee Associations (CFA) ratified a “Universal Franchisee Bill of Rights.” According to its Preamble, this “fairness doctrine” was adopted because “the terms of the franchise agreements have become more one-sided in favor of the franchisors” with the goal of identifying basic terms of fairness missing in current franchise agreements.
Since passage, several states have begun the process of amending existing or proposing new franchise relationship laws designed to adopt or implement various aspects of the Universal Franchisee Bill of Rights. Last year, as discussed in our February blog post Increased rights and remedies for franchisees thanks to recent amendments to Ohio's Business Opportunity Plan law, by my colleague sopincar, the Ohio Business Opportunity Plan Law was revised in two significant ways that adopt tenants of the Universal Franchisee Bill of Rights. First, the 2012 Amendment to Ohio’s Business Opportunity Plan Law incorporates the “Full Disclosure” protection by giving franchisees the right to sue for violation of disclosure laws without a showing of fraud. Second, the law also renders any venue or choice of law provision that deprives a franchisee of the benefit of Ohio law void and unenforceable. Similarly, the 2012 Amendment voids any provision of a franchise agreement that restricts the jurisdiction or venue of a claim otherwise enforceable under the Act to a forum outside of Ohio. These provisions protect franchisees from out-of-state forum selection and follow the “Fairness in Dispute Resolution” protection of the Universal Franchisee Bill of Rights.
Following the 2012 failure of the “Level the Playing Field for the Small Businesses Act,” the California legislature picked up where it left off with its 2013 version entitled “California Small Business Investment Protection Act.” The proposed changes to California’s current franchise laws include provisions which significantly narrow franchisors’ existing rights to terminate or refuse to renew a franchise, a statutory “good faith” standard of dealing between franchisors and their franchisees, and a prohibition of franchisors from “refusing to recognize and deal fairly with and in good faith with any independent franchisee association.” It is hard to miss the protections of the Universal Franchisee bill of Rights within this proposed statute.
This year the Massachusetts legislature is also attempting to encompass some of the basic ideas of the Universal Franchisee Bill of Rights. The “Massachusetts Fair Franchise Act” would prohibit a franchisor from terminating or cancelling a franchise, or from substantially changing the competitive circumstances of a franchise agreement without “good cause.” Furthermore, the Act would mandate that written notice of termination or nonrenewal, along with the cause, be provided to a franchisee at least 90 days in advance, and that such termination or nonrenewal be made for good cause.
In sum, the trend is difficult to ignore and the question remains if franchisors will choose to amend their offering documents or avoid franchising in the states where enactment occurs? Only time will tell!