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Massachusetts Franchise Bill Proposed Concerning Franchise Terminations: What does S.1843 Mean for Franchisors

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 04/04/2012 | Category: Start a Franchise | No comments

Massachusets Franchise Law Proposal Aimed at Franchisee Terminations

Massachusetts bill S. 1843 introduced by Senator Brian A. Joyce on June 2011 is aimed at preventing franchisors from terminating franchisees without cause and from dealing with franchisees in less than good faith. 

If passed‚ Massachusetts bill S.1843 would require that franchisors abide by the proposed law in an attempt for the state to protect franchisees which would have the following terms according to the details of the bill:

  • A franchisor cannot (directly or through an officer‚ agent or employee) terminate a franchise without good cause which includes (but isn’t limited to) the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement;
  • Prior to termination of a franchise‚ the franchisor shall give the franchisee written notice of the termination at least 90 days in advance of the termination. The 90 day advanced written notice for termination will not apply if the reason for termination because: (1) the alleged grounds were voluntary abandonment by the franchisee of the franchise relationship‚ in which event‚ such notice may be given 15 days in advance of the termination‚ cancellation‚ or failure to renew; or (2) the alleged grounds are the conviction of the franchisee in a court of competent jurisdiction of an offense punishable by a term of imprisonment in excess of 1 year and directly related to the business conduct pursuant to the franchise‚ in which event‚ notice may be given at any time following the conviction and shall be effective upon delivery and written receipt of the notice;
  • A franchisor cannot (directly or through an officer‚ agent or employee) fail to renew a franchise‚ except for good cause shown which includes‚ but is not limited to‚ the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement.
  • The franchisor is obligated to act in good faith and shall not refuse to renew a franchise for arbitrary or capricious reasons. For the purposes of non-renewal‚ “good cause” is defined as based upon legitimate business reason‚ and includes the franchisee’s failure to comply with any material lawful requirement contained in the franchise agreement;
  • Before non-renewal of the franchise‚ the franchisor shall give the franchisee written of the non-renewal at least 90 days in advance of the non-renewal with cause stated;
  • A franchisor that develops a new outlet or location which has an adverse impact on the gross sales of an existing franchisee’s outlet or location will be liable to the affected franchisee for monetary damages‚ unless any of the following are applicable: (1) the franchisor first officers the new outlet or location to the existing franchisee and/or (2) at the time the new outlet or location is developed‚ the existing franchisee is not in compliance with the franchisor’s current reasonable criteria for new franchisees;
  • Upon termination of a franchise for whatever cause or reason‚ except voluntary relinquishment or abandonment of the franchise by the franchisee‚ the franchisor must fairly compensate the franchisee or franchisee’s estate for the fair market value at the time of termination of the franchise‚ of the franchisee’s inventory‚ supplies‚ equipment and furnishing purchased by the franchisee from the franchisor or its approved sources and good will‚ if any‚ exclusive of personalized items which have no value to the franchisor and inventory‚ supplies‚ equipment and furnishing purchased by the franchisee from the franchisor or its approved sources; and
  • A franchisor will not terminate or fail to renew a franchise for the failure or refusal of the franchisee to (1) refusal to take part in promotional campaigns of the franchisor’s products‚ (2) failure to meet sales quotas suggested by the franchisor‚ (3) refusal to sell any products at a price suggested by the franchisor or supplier‚ (4) refusal to keep the premises open and operating during those hours which are documented by the franchisee to be unprofitable to the franchisee or to preclude the franchisee from establishing his own hours of operation beyond the hours of 10 p.m. and prior to 6 a.m. and/or (5) Refusal to give the franchisor or supplier of financial records of the operation of the franchise which are not related or unnecessary to the franchisee’s obligations under the franchise agreement.

Learn More About Franchising in Massachusetts

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