Budget Amendment ID: FY2013-S4-244-R1

Redraft ECO 244

Further Regulating Franchise Agreements

Mr. Joyce moved that the proposed new text be amended by inserting after section 78 the following section:-

“SECTION 78A. Chapter 93 of the General Laws is hereby amended by adding the following  section :-

Section 115. For the purposes of this section, the following words shall, unless the context clearly requires otherwise, have the following meanings:

“Franchise”, a contract or agreement, either expressed or implied, whether oral or written, between 2 or more persons by which: (i) a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services, under a marketing plan or system prescribed or suggested in substantial part by a franchisor; and (ii) the operation of the franchisee’s business pursuant to that plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate.

“Franchisee”, an individual to whom a franchise is granted.

“Franchisor”, an individual, corporation, partnership, joint venture, association, joint stock company, trust or unincorporated organization that grants a franchise.

(a) A franchisor shall not, directly or through an officer, agent or employee, terminate a franchise, except for good cause shown which shall include, but not be limited to, the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement. For the purposes of termination, “good cause” shall mean: cause based upon legitimate business reason, and shall include the franchisee’s failure to comply with any material lawful requirement contained in the franchise agreement.

Prior to termination of the franchise, the franchisor shall give the franchisee written notice of the termination at least 90 days in advance of the termination with the cause stated on the written notice. The 90 day advanced written notice for termination shall not apply if the reason for termination is because: (1) the alleged grounds were voluntary abandonment by the franchisee of the franchise relationship, in which event, such notice may be given 15 days in advance of the termination, cancellation or failure to renew; or (2) the alleged grounds are the conviction of the franchisee in a court of competent jurisdiction of an offense punishable by a term of imprisonment in excess of 1 year and directly related to the business conduct pursuant to the franchise, in which event, such notice may be given at any time following the conviction and shall be effective upon delivery and written receipt of the notice.

(b) A franchisor shall not, directly or through an officer, agent or employee, fail to renew a franchise, except for good cause shown which shall include, but not be limited to, the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement. The franchisor is obligated to act in good faith and shall not refuse to renew a franchise for arbitrary or capricious reasons. For the purposes of non-renewal, “good cause” shall mean cause based upon legitimate business reason and includes the franchisee’s failure to comply with any material lawful requirement contained in the franchise agreement.

Before non-renewal of the franchise, the franchisor shall give the franchisee written notice of the non-renewal at least 90 days in advance of the non-renewal with cause stated on the written notice.

(c) A franchisor that develops a new outlet or location within the relevant market area of an existing franchisee's outlet or location shall be liable to the affected franchisee for monetary damages, unless:

(1) the franchisor first offers the new outlet or location to the existing franchisee; or

(2) at the time the new outlet or location is developed, the existing franchisee is not in compliance with the franchisor’s current reasonable criteria for new franchisees.

(d) Upon termination of a franchise for whatever cause or reason, except voluntary relinquishment or abandonment of the franchise by the franchisee, the franchisor shall fairly compensate the franchisee or franchisee’s estate for the fair market value at the time of termination of the franchise, of the franchisee’s inventory, supplies, equipment and furnishing purchased by the franchisee from the franchisor or its approved sources and good will, if any, exclusive of personalized items which have no value to the franchisor and inventory, supplies, equipment and furnishings not reasonably required in the conduct of the franchise business; provided, however, that compensation need not be made to a franchisee of good will if: the franchisor agrees in writing not to enforce a covenant which restrains the franchisee from competing with the franchisor; and provided further, that a franchisor may offset against amounts owed to a franchisee under this subsection any amount owed by the franchisee to franchisor.

(e) A franchisor shall not terminate or fail to renew a franchise for the failure or refusal of the franchisee to do any of the following:

(1) Refusal to take part in promotional campaigns of the franchisor’s products.

(2) Failure to meet sales quotas suggested by the franchisor.

(3) Refusal to sell any products at a price suggested by the franchisor or supplier.

(4) Refusal to keep the premises open and operating during those hours which are documented by the franchisee to be unprofitable to the franchisee or to preclude the franchisee from establishing his own hours of operation beyond the hour of 10 p.m. and prior to 6 a.m..

(5) Refusal to give the franchisor or supplier of financial records of the operation of the franchise which are not related or unnecessary to the franchisee’s obligations under the franchise agreement.

(f) A franchisor, directly or indirectly, through any officer, agent, or employee shall not:

(1) prohibit, directly or indirectly, the right of free association among franchisees for any lawful purpose;

(2) require or prohibit any change in management of any franchise unless the requirement or prohibition of the change shall be for good cause, which cause shall be stated in writing by the franchisor;

(3) impose unreasonable standards of performance upon a franchisee;

(4) fail to deal in good faith with a franchisee;

(5) sell, rent or offer to sell to a franchisee any product or service for more than a fair and reasonable price;

(6) impose on a franchise by contract, rule or regulation, whether written or oral, an unreasonable standard of conduct;

(7) discriminate between franchises in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing, unless (A) that discrimination between franchisees would be necessary to allow a particular franchisee to fairly meet competition in the open market; or (B) to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is reasonable, is based on franchises granted at materially different times and the discrimination is reasonably related to the difference in time or on other proper and justifiable distinctions and is not arbitrary; provided, that nothing in this subsection shall be construed as granting to a franchisor any right which may be limited by any other state or federal statute; or

(8) notify the franchisee of a claimed breach of franchise agreement for good cause later than 180 days from the date good cause arises or 180 days after the franchisor knew or in the exercise of reasonable care should have known of the claimed good cause.

(g) A franchisee or franchisor, upon request, shall have the right to have the question of good cause submitted to arbitration in accordance with the rules of the American Arbitration Association. A franchisee or franchisor, upon the rendering of a decision in arbitration, shall have the right to apply to the superior court in the county wherein the franchisee or franchisor is doing the business or resides for confirmation, modification, correction or vacation of any arbitration decision.

(h) A franchisor shall protect and save harmless its franchisee from financial loss and expense, including legal fees and costs, if any, arising out of any claim, demand, suit or judgment by reason of defect in merchandise or methods or procedures prescribed by franchisor and performed by the franchisee, except for alleged negligence or willful misconduct of the franchisee.

(i) A franchisor shall reimburse its franchisee at the prevailing retail price for any services rendered or party supplied by the franchisee in satisfaction of any warranty issued by the franchisor, and a franchisor shall not restrict a franchisee from rendering services or providing parts in accordance with standards of good workmanship in satisfaction of the warranty."