Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Maine Bill Would Protect Franchisees from Unfair Franchisor Practices: Franchisee Association, (May 8, 2013)

By John W. Arden, J.D., LL.M.

The proposed Maine Small Business Investment Protection Act (Legislative Document 1458) would help franchisees protect their investments in their franchises from unfair acts and practices of their franchisors, according to the Coalition of Franchisee Associations (CFA). The franchisee group called for passage of the legislation in its current form.

"The CFA commends House Rep. Erin Herbig for introducing such an important piece of legislation and encourages the Maine legislature to support its passage," said CFA Executive Director Misty Chally. "It’s crucial that the issues currently present in franchise agreements be brought to light, and Maine job creators are granted the rights they need and deserve to effectively run their businesses."

Introduced in the Maine House of Representatives on April 25, the bill would prohibit fraud in the offer and sale of a franchise; require franchisors to provide prospective franchisees with a disclosure document; forbid franchisors from restricting franchisees from joining a trade association; and bar termination or cancellation without good cause, 90 days notice, and 60 days in which to rectify the claimed defaults.

Franchise termination or nonrenewal could not be based on a franchisee’s failure to take part in promotional campaigns, failure to meet sales quotas not set forth in the franchise agreement, refusal to sell products or services at a price suggested by the franchisor, failure to keep franchised premises open during unprofitable hours, or refusal to provide financial records not related to the performance of the franchisee’s express obligations under the franchise agreement. Upon termination of a franchise, the franchisor would be required to compensate the franchisee for the fair market value of the franchise; for inventory, supplies, equipment, and furnishings purchased from the franchisor or an approved source; and for the fair market value of franchise good will.

Renewal could not be subject to unreasonable fees, and renewal agreements would be required to contain the same royalties, advertising fees, and other fees as the expiring franchise agreements.

Legislative Document 1458 would further provide that franchisors have a fiduciary duty towards their franchisees in the provision of financial services or administration of a fund or program; would impose a duty of good faith and fair dealing on franchisor dealings with franchisees; and would apply a duty of due care on franchisors’ exercise of contractual obligations to franchisees. If a franchisor violates a provision of the law, franchisees would be authorized to bring an action for injunctive relief, damages, attorney fees, and costs of suit.

"This bill accurately reflects the significant amount of time and resources invested in franchises by small business owners across the country," said CFA Chairman Keith Miller. "The CFA strongly believes that a balanced industry, with strong franchisees and franchisors, creates an environment for greater expansion."

The CFA held a briefing this morning to prepare franchisees for a hearing before Maine’s Joint Standing Committee on Labor, Commerce, Research and Economic Development this afternoon.

The Coalition of Franchisee Associations brings together 19 of the largest independent franchisee associations, with a mission to "leverage the collective strengths of franchise associations for the benefit of the franchisee community." The CFA represents associations whose members own franchises from the Subway, Burger King, 7-Eleven, AM/PM Service Stations, Buffalo Wild Wings, Dunkin’ Donuts, Meineke, Kumon Learning Centers, Domino’s, Little Caesars, and Supercuts systems, among others.

News: FranchisingDistribution MaineNews