Potentially more significant than the proposed changes to the definition of “place of business” is the additional language that the Bill would tack on to the “general purpose” section of the Franchise Practices Act. The proposed Bill would add the following language:

“…and to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees. The legislature finds that these protections are necessary to protect not only retail businesses, but also wholesale distribution franchisees that “through their efforts” enhance the reputation and goodwill of franchisors in this State. Further, the legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act then was intended by the legislature”.

This additional language should concern franchisors doing business in New Jersey, since it is unnecessary to achieve the expansion to the “place of business” definition that is the focus of the Bill. This tougher language may indicate that there are further changes to the statute being considered. Certainly, the inclusion of the proposed language would be used as a justification by judges to give much broader application to the Act than has been the case in years past.

The two Bills are currently in the initial stage of the legislative process, and will probably not be acted upon until May or June of this year. The current sponsors of the two Bills are Assemblyman Joseph Cryan – District 20 (Union County) and Senator Bob Smith – District 17 (Middlesex and Somerset Counties). The legislation was introduced in the House on March 10, 2008, and in the Senate of March 17, 2008.

A “contract of adhesion” is legal-speak for “non-negotiable” and is “take-it-or-leave-it” in nature.  Most franchise agreements are non-negotiable because it is important for the system to maintain uniform and consistent standards.  However, various courts have deemed franchise agreements to be contracts of adhesion because of the superior bargaining power of the franchisor.  Since most franchise agreements are contracts of adhesion, and if this Bill passes, it will be extraordinarily difficult for franchisors to enforce non-competition agreements among franchisees in Vermont. 

One can only hope that this idea does not spread beyond the borders of the Green Mountain State.    Vermont’s legislature appears intent of following this strange course of action, which is out of step with the other states.  Watch this log for more updates.

The coordinated review program was adopted to streamline the franchise registration process.  It provided franchisors with the ability to simultaneously register their franchise offering in two or more participating states.  A lead examiner would then be assigned to coordinate and oversee the registration process among the states.  Prior to the suspension, 11 states participated in the program. 

The future of the coordinated review program is not known.  However, state administrators plan to re-evaluate the program after July 1, 2008, when the new disclosure format becomes mandatory and examiners will no longer have to review disclosures under both the new and old formats.  

The impact of this legislation is considerable.   New Jersey courts, like several other states, have held that franchise agreement provisions providing for out-of-state arbitrations are enforceable.  See Allen v. World Inspection Network, Int’l, Inc., 389 N.J.Super.115, 911 A.2d 484 (App. Div. 2006).  Previously, the New Jersey Supreme Court held that forum-selection clauses in franchise agreements are presumptively invalid, and should not be enforced. Kubis & Perszyk Assocs. v. Sun Microsystems, 146 N.J. 176 (1996).  However, New Jersey courts (as in other states) have distinguished arbitration provisions from other forum selection clauses under the rational that the Federal Arbitration Act preempts state franchise laws.   This legislation would effectively negate the rational applied by the Allen court, as well as other courts throughout the country. 
 
While not much will occur during the remainder of August due to Congress’ summer break, these bills will be moving through the respective Committees at the beginning of September.

The deceptively titled “Employee Free Choice Act of 2007” has been defeated in Congress.  The Act, which would have allowed for, among other things, “card voting” by employees to establish a union (in lieu of an actual, verifiable vote) posed a significant risk to the franchisor community. 

Although strong union interests quickly moved the bill through the House in the Spring, bi-partisan action has effectively defeated the Bill.  Although this is good news for franchisors, the franchisor community needs to watch for any attempts to revive this defeated legislation over the next year leading up to the presidential election campaign.

The article discusses the Federal Trade Commission's announcement of substantial revisions to its franchise disclosure requirements.

You can read the full article here.

You can read the article here.

The article explains how franchising laws vary from state to state and how these differences should be taken into account when deciding on the location for a franchise.

You can read the article here.

Is New Jersey a good place to open a franchise?
Yes. We have the state Franchise Practices Act. That gives New Jersey citizens who are buying a franchise extra protection beyond just what the contract says between the company and the new franchise.

What other protections does New Jersey offer?
A lot of times when you sign an agreement with, say, McDonald's, which is an Illinois company, they say if there is a dispute, you have to fight it in Illinois courts. New Jersey doesn't enforce those. The courts here look at that clause and figure the franchisee probably can't afford to take a case halfway across the country.

Do you worry about the ramifications of all this franchising?
From a business perspective, I don't really worry about it. Franchising is just the wave of the future, and a lot of mom-and- pops are converting to franchise. But it may get to the point where the great little unique stores may go out of business.

You can read the entire interview here.

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