Do Franchise Laws Vary by State?
UPDATED: June 19, 2018
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While every franchise business is subject to the franchise regulations laid out by the Federal Trade Commission (FTC), franchises are also subject to state franchise laws and regulations as well. While the FTC franchise regulations are aimed at all types of franchises, many state regulations are industry-specific. Further, franchise law is not a completely separate body of law, since it also involves other state laws such as trademark, intellectual property, and commercial. This means that there can be many different nuances between franchise laws from state to state.
Some states have comprehensive franchise regulations. The franchise laws in these states usually require the franchiser to register with the state government. While the FTC regulations state that a Franchise Disclosure Document must be given to the franchisee, many states with comprehensive franchise laws will have further rules on what is to be provided to a potential franchisee. Various states may also require the franchisor to file the necessary documents with the state. States with comprehensive franchise laws will also generally review the franchisor's financial information as well as any documents they plan to give to a potential franchisee.
Do Some States Have More Stringent Franchise Laws?
The intention of high-regulation states is to reduce fraudulent business practices. A state can deny the registration of a franchise business if it feels that franchise documents contain false or misleading information. These states may also deny registration if there are circumstances in which selling the franchise would be deceptive in some manner. The FTC website has information about which states have these comprehensive franchise laws.
There are other various franchise laws that apply in certain states. Many states have laws that regulate the relationship between the franchisor and the franchisee called franchise relationship laws. These relationship laws mainly require the franchisor to have “good cause” before it can refuse to renew a franchise contract with the franchisee. This adds an extra layer of protection for the franchisee, who may want to extend the franchise contract. Sometimes these relationship laws will determine what happens in the event of the death of the franchisee, and any devising rights the franchisee has to his or her heirs.
Some states also have franchise laws that apply to specific industries, such as auto dealers or service stations. Furthermore, the legal definition of a franchise can vary from state to state.
Can the Franchisor Be Taken to Court in the Franchisee's Home State?
This will depend on the state law and, if consistent with state law, the franchise agreement. Many franchise agreements provide that all disputes must be settled out of court in arbitration, forbidding any lawsuits, unless the state does not permit that type of dispute resolution structure within the agreement.
If lawsuits are possible, be aware that most franchisors want to have lawsuits heard in their home state, and structure their franchise agreements accordingly. However, several states have laws which require that franchisors be amenable to suit in the state in which the franchise is located.
Should You Consult a Franchise Lawyer?
Yes. Because franchises are subject to a multi-layered variety of complex federal and state laws and regulations, it is important to deal with an attorney familiar with franchising generally and your state's laws in particular.