Improving Franchise Laws

Originally posted on 03/31/2016, content updated on 11/10/2023

As I’ve written elsewhere, my guess is that the California franchise relationship law represents a specific congruence of interests that is unlikely to be repeated in other states.

Outside of California, the franchise laws enacted in 2016 had nothing to do with termination and non-renewal or good faith in franchise relationships. Instead, the laws declared that franchisors were not joint employers of the franchisee’s employees. Such laws were passed the same year in Texas (S.B. 652), Louisiana (HB 464), Tennessee (SB 475), Wisconsin (SB 422) and Michigan (SB 492). They were a reaction to the NLRB’s then-radical joint employment standard in franchising.

Nevertheless, the rewrite of the California franchise relationship law is important. In an article in the Spring 2016 issue of The Franchise Lawyer, a publication of the American Bar Association’s Forum on Franchising, Rupert Barkoff called the enactment of the California law “a monumental event in the history of franchise law.” Mr. Barkoff pointed out that it was the first state relationship law enacted in 24 years. I prefered to view it as a modification of an existing law in a state that already had a franchise relationship law. Mr. Barkoff also noted that it may have been the first time that franchisor and franchisee advocates actually negotiated a franchise law, thanks to then-Governor Jerry Brown’s role.

Mr. Barkoff’s fundamental criticism of the new California law is that he sees it as a possible trendsetter leading to a proliferation of similar state legislation, adding to the complex patchwork of state franchise laws. I disagree with this prediction, and only time will tell which of us is right.

But the more important point is that he viewed the California law as a setback to his vision of the ideal franchise regulation. In the best of all worlds, Mr. Barkoff would have liked to see a federal franchise law that preempts state franchise laws. He made the same point in an article he wrote in the New York Law Journal on March 17, 2015. He would have liked to see the enactment of a federal franchise law that would preempt the state laws, the creation of a private right of action in federal courts, and possibly federal registration in place of state franchise registration.

I agree with these goals. And so do others. One of the more interesting franchise law programs in recent years was a plenary session in October 2013 at the ABA Forum on Franchising called “If I Had a Wizard’s Wand”, at which franchise lawyers spoke about what they would do to change franchise laws in the U.S. if they had unlimited powers to magically change them. In that program, Rochelle Spandorf advocated enacting a federal franchise law that would preempt all state franchise sales and relationship laws and provide for a private right of action. This would allow, for example, for a uniform definition of a franchise and uniform exemptions. Lee Abrams and John Dienelt largely agreed with these ideas.

A single national franchise law would make the U.S. a more appealing destination for foreign franchisors. It would avoid much of the problem of the inadvertent franchisor and simplify the launch of new franchise systems. New York franchise law, for example, is in serious need of an overhaul, and federal preemption is one way to get there.

Tom Pitegoff,
Tom.Pitegoff@offitkurman.com