My optimistic world view got the best of me at the start of the 2014 legislative season in New York State. I thought that 2014 might be the year when New York State changes its franchise law. The changes that the New York State Bar Association (NYSBA) first recommended in January 2010 did become an Assembly bill at the end of the 2014 legislative session. But no Senator wrote a companion bill in the 2014 legislative session. And no bill came to a vote either in the Assembly or the Senate.
The New York Franchise Act (NYFA) was already out of step with federal law when it became effective in 1981. The Federal Trade Commission (FTC) issued its first trade regulation rule on Franchising (the FTC Rule) in 1979. The FTC updated and revised the FTC Rule in 2007, making large portions of the NYFA obsolete. In that same year, I wrote about the need to change the NYFA.
The reason to change the NYFA is simple. It will improve the climate for business in New York.
Current New York law defines a franchise far too broadly, covering many trademark license agreements and even consulting agreements that no one thinks of as franchises. The uncertain risk of being deemed a franchise sends some business to other states.
The NYFA also differs from all other state franchise laws because the NYFA applies to local franchisors whose only franchise offerings are made outside the U.S. Even the FTC Rule does not apply to international franchise sales. The international scope of the law also sends businesses to other states.
It is difficult to quantify the amount of business that New York State has lost to other states as a result of the broad scope of the NYFA. But I and other attorneys in the field know that the NYFA has driven some prospective businesses out of the state because we advise clients on the scope of the NYFA and we have seen clients decide to set up their businesses in other states rather than deal with the NYFA.
These are just two of the many reasons to change the NYFA.
I choose to remain hopeful. Maybe Assembly Bill 10076 will be reintroduced in the Assembly in 2015 and maybe a companion bill will be introduced in the Senate. And maybe it will be voted on and signed by the Governor in 2015.