Franchising & Distribution Law Blog

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. 

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.

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.”

Greensfelder summer associate Kiran Jeevanjee contributed to this blog post.

Native American tribes occupy a unique position within the American legal system, and understanding these issues is vital for any franchisor considering a tribe as a potential franchisee. Federally recognized Native American tribes are classified as “domestic dependent nations” — meaning that the tribes are considered “distinct independent political communities” and can govern their own internal affairs. The most important consequence of this classification from a business perspective is that such tribes are entitled to tribal sovereign immunity that protects them from any civil suits or criminal prosecutions to which they did not consent.

A Georgia federal court recently found that a person who did not sign a franchise agreement was nevertheless bound by it. That was good news for a franchisor caught between two parties who claimed no responsibility for violating the franchise agreement by opening a competing business in the same franchise location. 

A recent federal appeals court decision overturning a $6.5 million jury verdict for a franchisee on a state franchise law discrimination claim demonstrates once again the difficulty that franchisees face in such challenges, even when the court finds that the franchisor treated some franchisees differently than others in some instances and could not explain why.

Despite arguably conflicting terms in a franchise agreement, a franchisor could enforce a non-compete provision whenever the agreement ended, whether by termination or expiration. An arbitrator reached that conclusion by harmonizing two provisions in the franchise agreement that referenced a non-compete obligation — one that referenced termination and one that referenced both termination and expiration. This was a reasonable interpretation of the contract, according to the Maryland federal district court that found no basis to upset the arbitration award.