Must Franchisors and Franchise Owners Agree On Fairness?


Many states are attempting to level the playing field in franchising by creating statutes known as "fair franchising" laws.

These bills and enacted laws are created to soften the harsh remedies often found in franchise agreements.

They are created to make franchising less one sided and thereby fair to both franchisees and franchisors.

In essence, these fair franchising laws typically override the franchisor's franchise agreement and require that the franchisor provide greater notice and opportunity to remedy a default by a franchisee located in that state; require that the franchisor renew a franchise that would likely have terminated but for the state's fair franchising law; or require a greater time period for notice to a franchisee prior to terminating a franchise.

For example in 2012, California was considering, a new fair franchising law that would:

1. Require a franchisor to provide 60 days opportunity to remedy a financial default;

2. Prevent a franchisor from terminating a franchisee except for "good cause";

3. Provide remedies to franchisees for franchisor's failures to provide a "duty of competence" to franchisees, etc.

This bill, if it had passed and enacted into law, would have provided the most far reaching fair franchising law in the country. It died in the Judicial Committee, lacking 1 vote.

So, do you think that these fair franchising laws are fair?

Obviously it depends on your perspective.

If you are a franchisee, these laws that require more stringent standards for default, termination and non-renewal of a franchise are wonderful.

For a franchisor, these laws create a situation in which a franchisor will have greater difficulty enforcing system standards.

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Generally, franchisees have the opportunity to shape their relationships every time the franchisor asks for a systemic change to the franchise agreement.

But, if franchisees fail to do so, I am not sure that they should look to the public to provide them with the terms that they could not negotiate for themselves.

Some of these legislative changes in favor of franchisees likely won't have the outcome that is expected.

For example "60 days opportunity to remedy a financial default" franchisors will simply default sooner than they currently are.

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