Franchising & Distribution Law Blog

The advances in technology have undoubtedly opened opportunities for franchisors and franchisees to enhance their business, enhance productivity, improve sales. However, such opportunities carry additional burdens and are not free of risk. Two recent examples of franchisor's potential liability arising out of technological advances highlight the need to be vigilant.

In 1986, California enacted the Safe Drinking Water and Toxic Environment Act popularly referred to as “Proposition 65.” Cal. Health & Safety Code § 25249.6 (West 2012). Proposition 65 requires that any product or services which contain certain chemicals with the potential to cause cancer or reproductive toxicity to give a “clear and reasonable warning” that the product or services contain such chemicals. The breadth of Proposition 65 is comprehensive applying not only to California business, but also to any other companies that sell products or engage in activities that could result in potential exposures in the State of California. Hence, any company which distributes products or performs services which have the potential to end up in California commerce should be aware of the Act and comply with its terms if necessary.

Franchisors often include a “no reliance” clause in their franchise agreements, in which the franchisees acknowledge that they have not relied on any information or representation not expressly stated within the franchise agreement itself. The intent of such clauses is to help protect against a claim based on alleged oral or written representations made outside of the franchise agreement. Although several federal courts have found that such “no reliance” clauses preclude franchisees from proving fraudulent misrepresentation cases, many state courts have been hesitant to bar fraud claims based on such clauses.

Leonard Vines (a blog contributor) shares below his insights - both positive and negative - a franchise system should consider when entertaining the idea of a private equity investor. The full article (found here) includes the observations of other industry leaders about private equity's impact on franchising.