Category Archives: Franchise laws

Testing a New Franchise Concept

One of the toughest challenges an aspiring franchisor may face is selling its first franchise.  Who would take the risk of buying a franchise from a franchise company that has no franchisees? For a few successful business owners, the idea of franchising may come from one or more customers who love the business concept and initiate the idea of buying a franchise even before the owner has taken the first step to prepare a franchise offering.  But this rarely happens. Here’s another suggestion:  If the aspiring franchisor has a successful business unit (a store or a restaurant, for example) that …

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Correcting an Accidental Franchisor Violation

What’s a franchise?  Franchise registration and disclosure laws define a “franchise” more broadly than people generally realize.  A company may be franchising without knowing it.  The “license” agreement may have been drafted, for example, by an attorney who has limited knowledge about franchise law.  Hence the popular topic (at least among franchise lawyers) of the “inadvertent” or “accidental” franchisor. A business owner who has run a successful “test” of licensing its business may decide that the next step is to set up a franchise system, not realizing that the test was already a franchise sold in violation of one or …

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Suspending Franchise Sales

In several states that require franchise registration, franchisors should suspend franchise sales while an amendment or renewal application is pending with the state.  Franchisors commonly suspend franchise sales pending registration in most states that require franchise registration.  But California and New York each offers a unique and very different approach than a blackout or suspension of sales. California takes an approach that is eminently practical.  In California, a franchisor may deliver to a prospect the franchise disclosure document (“FDD”) as filed with state for renewal or amendment together with a written statement that the filing has been made but it has not …

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Notice of Rights Enhances Trade Secret Protection

In order to access the full range of remedies the Defending Trade Secrets Act of 2016 (DTSA) offers, a trade secret owner must notify employees and contractors of certain rights they have under the DTSA. The DTSA allows a trade secret owner to seek damages and injunctive relief in federal court against someone who misappropriates the company’s trade secrets. The trade secret must be related to a product or service used or intended for use in interstate or foreign commerce. The action must be brought within three years after the misappropriation was discovered or reasonably should have been discovered. And the …

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New Tool to Protect Franchisors’ Trade Secrets

On May 11, 2016, President Obama signed into law the Defending Trade Secrets Act of 2016 (the Act). The Act amends the Economic Espionage Act of 1996 to create a federal private right of action for the misappropriation of trade secrets. The Act offers to all companies with trade secrets new tools to protect against their misappropriation in interstate commerce as well as foreign commerce. Trade secret owners can use the Act in defending against both domestic and foreign threats.

Improving Franchise Laws

Will California’s recent overhaul of its franchise relationship law lead to a proliferation of state franchise relationship laws? I doubt it. As I’ve written elsewhere, my guess is that the California law represents a specific congruence of interests that is unlikely to be repeated in other states. Outside of California, the new franchise laws being enacted today have nothing to do with termination and non-renewal or good faith in franchise relationships. Instead, we are seeing new state laws declaring that franchisors are not joint employers of the franchisee’s employees. Such laws were passed in recent months in Texas (S.B. 652), Louisiana …

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State Regulation of Biz Ops

26 states in the U.S. have laws that govern the sale of business opportunities, or “biz ops”. California and some other states use the term “seller assisted marketing plan” instead of business opportunity, but the substance is the same. At the federal level, the Federal Trade Commission (FTC) regulates the sale of biz ops, as explained in an earlier post. The FTC biz op rule does not preempt the state biz op laws, but allows the states to impose their own requirements. Like the franchise laws, the business opportunity laws contain disclosure requirements and many require a filing. Unlike in franchising, …

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What’s a Biz Op?

What’s a business opportunity or, as we often say, a “biz op”? The Federal Trade Commission (FTC) regulates biz op sales under its authority to regulate unfair or deceptive trade practices. The FTC’s definition of a business opportunity differs from the definitions under the laws of the 26 states that regulate biz ops, and the states themselves have varying definitions. These laws impose anti-fraud obligations on the sellers of biz ops, and some require registration and disclosure. This post covers the FTC biz op rule (16 CFR Part 437). A separate post will address state biz op laws. The FTC …

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California Toughens Its Franchise Relationship Law

California franchisees will soon have additional statutory protections against a franchisor’s termination or non-renewal of the franchise without good cause, and new protections against the franchisor’s refusal to approve the transfer of the franchise without good cause. On October 11, 2015, Governor Jerry Brown signed into law Assembly Bill 525, substantially amending the California Franchise Relations Act (CFRA), which has been in effect in California since 1980. The revised CFRA applies to franchise agreements entered into or renewed on or after January 1, 2016, and to franchises of an indefinite duration that may be terminated without cause. (Section 20041 of the …

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Reflections on the Origins of the NY Franchise Act

I recently had occasion to review the legislative history of the New York Franchise Sales Act (NYFSA)–click here to see for yourself. Here are a few of my reflections. The NYFSA was enacted into law in 1980 and became effective January 1, 1981. At that time, Robert Abrams was the NY Attorney General and Hugh Carey was the Governor. Abrams supported the bill and Carey signed it into law. In recommending passage of the bill, Attorney General Abrams cited the numerous complaints of franchise fraud and abuse that the department of law had received. More than 13,000 New Yorkers had …

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