Greensfelder’s Franchising & Distribution Industry Group attended the 2023 International Franchise Association’s (IFA) Legal Symposium in Washington, D.C., in May. Greensfelder Officers Beata Krakus and Abby Risner led roundtable discussions, and the team attended sessions exploring the dynamic changes happening in the world of franchising. Below is a summary of the group’s top takeaways:
Fast-changing privacy laws. New state privacy legislation is being proposed and signed into law monthly, creating an inconsistent patchwork of laws governing how franchised (and non-franchised) businesses can use their data. Brands cannot afford to bury their heads in the sand. Customer data is the lifeblood of nearly all businesses. Brands need to be up to date on the new regulations and prepared to adjust their data policies and operational approaches. Each state’s requirements vary. Consider incorporating appropriate requirements to address privacy issues in your franchise agreements and operations manuals.
The U.S. Small Business Administration (SBA) is amending various regulations governing SBA's 7(a) Loan Program and 504 Loan Program. As part of the amended revisions, the SBA is removing the provisions relating to affiliation based on franchise and license agreements. Because of that removal, the SBA is eliminating the SBA Franchise Registry as of May 11, 2023.
Nevertheless, as requirement for all loans, SBA lenders must still examine the franchised business for affiliation based on ownership. The SBA announcement described the following as an example: “(W)hen lending to a Franchised business, the SBA Lender must determine who owns the applicant business and any businesses the applicant owns in accordance with these regulations. However, neither the SBA Lender nor SBA will review the applicant Franchised business for affiliation with other entities beyond ownership; the applicant business will not be considered affiliated with the Franchisor or other Franchised businesses except by ownership.”
The FTC on March 10 posted a solicitation for public comments on several questions relating to the relationship between franchisors and franchisees, as well as to franchisors’ involvement in certain franchisee employment matters and the relationship with third-party suppliers to franchisees.
Electric vehicle (EV) charging is now available at traditional motor fuel stations, as well as restaurants, parking garages, grocery chains, and banks. With the increase of fully electric vehicles apparent in the news and on the streets and poised to grow exponentially, some franchisors are assessing incorporating EVs into their franchise systems.
As noted in Restaurant Dive, many restaurant chains have spent the last few years pushing for growth through multi-unit franchisees, but challenges could lie ahead, as franchisees will likely face challenges due to high costs and pressure to use new technologies.
Greensfelder’s Franchising & Distribution Industry Group had a busy end to 2022. In the final two months of the year, the group served as franchise counsel to multiple parties involved in large acquisitions, with all but one closing in December and the remaining transaction expected to close in the first quarter of 2023.
New policy effective as of January 1, 2023
Franchisors routinely require prospective franchisees to answer questions about the franchise sales process and the franchisee’s understanding of the franchise agreement in writing by marking “yes” or “no” in a questionnaire. Likewise, franchise agreements often include statements similar to those in the questionnaire. These take the form of acknowledgments the franchisee agrees to when signing the franchise agreement.
One of the frequent services my colleagues and I provide to franchisors is franchise sales compliance training. It is often an eye-opening experience for new franchisors, and even experienced franchisors can find it to be a stark reminder of how heavily regulated the business of selling franchises is.
No brand can be successful, or frankly, exist, without some form of advertising and marketing. However, the myriad of regulations that apply to advertising and marketing can make that vital activity seem fraught with peril.
New amendments to California franchising law broaden its regulations on franchisors. California Assembly Bill 676, signed by Governor Newsom on September 29, 2022, amends the California Franchise Relations Act (“CFRA”) and the California Franchise Investment Law (“CFIL”), which apply to the termination, nonrenewal, and transfer of franchises. The law’s sponsor, Assembly-member Chris Holden, claims the amendments to California franchise law will “rectify the unbalanced relationship between franchisee and franchisors.”