Sec. 3. Unfair franchise practices
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In connection with any disclosure document, notice, or report required by any Federal, State, or local law, it shall be unlawful for any franchise seller, either directly or indirectly through another person— to— make an untrue statement of material fact; fail to state a material fact; or fail to state any fact which would render any required statement or disclosure either untrue or misleading; and fail to furnish any prospective franchisee with— all information required to be disclosed by law and at the time and in the manner required; a written statement specifying, prominently and in not less than 14-point type, whether the franchise agreement involved contains a right to renew such agreement; and historical financial performance data including sales, expenses, and profitability data, in the disclosure document or to make any claim or representation to a prospective franchisee whether orally or in writing, which is inconsistent with, or which contradicts, the franchisor’s disclosure document.
In connection with the performance, enforcement, renewal, or termination of any franchise agreement, it shall be unlawful for a franchisor or subfranchisor, either directly or indirectly through another person, to do any of the following: To engage in an act, practice, course of business, or pattern of conduct which operates as a fraud upon any person. To hinder, prohibit, or penalize (or threaten to hinder, prohibit, or penalize), directly or indirectly, the free association of franchisees for any lawful purpose, including the formation of or participation in any trade association made up of franchisees or of associations of franchisees.
To discriminate against a franchisee by imposing requirements not imposed on other similarly situated franchisees. To otherwise retaliate, directly or indirectly, against any franchisee for membership or participation in a franchisee association. To charge excessive and unreasonable renewal fees. Fees shall not be deemed excessive and unreasonable if they do not exceed 50 percent of the amount of the average initial franchise fee or other required payments then being charged to all franchisees in the market.
To enforce a clause or provision in a franchise agreement requiring the parties to submit to arbitration unless the parties, each being represented by counsel, have voluntarily entered into an agreement after the dispute arises to submit the dispute to arbitration, and then only if the arbitration is conducted at a location reasonably convenient to the franchisee; provided, however, that the provisions of this subsection shall not prohibit the enforceability of a clause or provision in a franchise agreement which requires the parties to submit to nonbinding mediation conducted at a location reasonably convenient to the franchisee.
To terminate, cancel, or fail to renew a franchise for the failure or refusal of the franchisee to do any of the following: Refusal to take part in any promotional campaign which is not reasonable, implemented in good faith, and expected to promote the profitability of the franchisee’s business. Failure to meet sales quotas suggested or required by the franchisor not expressly set forth in the franchise agreement. Failure or refusal to sell any products or services at a price suggested or required by the franchisor, an affiliate of the franchisor, or any supplier approved by the franchisor.
Refusal to keep the franchised premises open and operating during hours which are unprofitable to the franchisee or to preclude the franchisee from establishing its own hours of operation or nonoperation for the period between the hours of 10 p.m. and 6 a.m., unless said business is commonly recognized as an extended hour business or the initial signed franchise agreement required operating during these hours. Refusal to give the franchisor or any supplier financial records of the operation of the franchise which are not related or unnecessary to the performance of franchisee’s express obligations under the franchise agreement or records unrelated to the franchise business.
To restrict a franchisee from associating with other franchisees or from joining, leading, or otherwise participating in a trade or other association, or retaliate against a franchisee for engaging in these activities. To 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 and be based on violations of material, reasonable and reasonably required express provisions of the franchise agreement.
Good cause shall include requiring that management of the franchise be conducted by— personnel who have been trained in the manner required of all franchise managers in the system; and personnel who are legally eligible for employment in the United States of America. To impose on a franchisee by contract, rule, or regulation, whether written or oral, a standard of conduct or performance unless the franchisor, its agents or representatives, sustain the burden of proving the standard to be reasonable, necessary, and uniformly enforced and applied throughout its system of franchisees, franchisor-owned units and licensees.
The following are examples of unreasonable conduct: To fail to deal fairly and in good faith or fail to exercise due care with a franchisee or any association or other aggregation or incorporation of franchisees in all business matters, including— proposed and actual transfer of the franchise; administration of advertising funds, rewards programs, and marketing funds; and the interpretation, administration, and performance of franchise agreements and area development or territory agreements.
To sell, rent, or offer to sell to a franchisee or require a franchisee to buy any product or service for more than a fair and reasonable price or without the reasonable expectation that the sale or rental transaction itself will be profitable for the franchisee’s business. To discriminate between franchisees in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing, unless that discrimination between franchisees— would be necessary to allow a particular franchisee to fairly meet competition in the open market; does not adversely affect the business of any existing franchisee; and to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is reasonable, the discrimination 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 or intended to be for the benefit of the franchisor at the expense of any franchisee.
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. To notify the franchisee of a claimed breach of the franchise agreement no later than 180 days from the date the breach arises or 180 days after the franchisor knew or in the exercise of reasonable care should have known of the claimed breach. To require a franchisee to keep the franchised premises open and operating during hours which are unprofitable to the franchisee or to preclude the franchisee from establishing its own hours of operation or nonoperation between the hours of 10 p.m. and 6 a.m., unless said business is commonly recognized as an extended hour business, or the initial signed franchise agreement required operating during these hours.
To require a franchisee to include noncompete language in employment contracts with its employees. To fail to, without charge, make readily available to franchisees, and provide a physical copy of true, accurate, and complete copies of all records and accountings of marketing, rewards programs, advertising funds, and fees that have been paid by franchisees, vendors, suppliers, and licensees. To impose performance standards on franchises unless the franchisor proves the performance standards are reasonable, necessary, and uniformly enforced.
To require or request a franchisee to assent to a release, assignment, novation, waiver, or estoppel which would prospectively relieve any person from liability imposed by this chapter. To require or demand that a franchisee pay liquidated or other post-termination damages in excess of the average monthly royalty fees paid by the franchisee during the prior 12 full calendar months (or the shorter time that the franchised location has been in the system), multiplied by the lesser of 6 months or the number of months remaining in the term of the franchise agreement.
To act to accomplish, either directly or indirectly through any parent company, subsidiary, affiliate, or agent, what would otherwise be prohibited under this chapter on the part of the manufacturer or distributor.