I 

115TH CONGRESS 

1ST SESSION H. R. 470 

To establish minimum standards of fair conduct in franchise sales and 

franchise business relationships, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 12, 2017 

Mr. ELLISON (for himself, Mr. HUFFMAN, Mr. CONYERS, and Ms. MCCOLLUM) introduced the following bill; which was referred to the Committee 

on the Judiciary 

A BILL 

To establish minimum standards of fair conduct in franchise 

sales and franchise business relationships, and for other 

purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Fair Franchise Act of 2017’’. 

6 (b) TABLE OF CONTENTS.—The table of contents of 

7 this Act is the following: 

Sec. 1. Short title; table of contents. 

Sec. 2. Findings and purpose. 

Sec. 3. Unfair franchise practices. 

Sec. 4. Standards of conduct. 


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Sec. 5. Procedural fairness. 

Sec. 6. Transfer of a franchise. 

Sec. 7. Renewal of the franchise; notice. 

Sec. 8. Termination; good cause; notice; opportunity to cure. 

Sec. 9. Effect of termination. 

Sec. 10. Transfer of franchise by franchisor. 

Sec. 11. Private right of action. 

Sec. 12. Scope and applicability. 

Sec. 13. Definitions. 

Sec. 14. Severability. 

Sec. 15. State attorneys general. 

1 SEC. 2. FINDINGS AND PURPOSE. 

2 (a) FINDINGS.—Congress finds the following: 

3 (1) Franchise businesses represent a large and 

4 growing segment of the Nation’s retail and service 

5 businesses and are rapidly replacing more traditional 

6 forms of small business ownership in the American 

7 economy. 

8 (2) Franchise businesses involve a joint enter9 prise between the franchisor and franchisees in 

10 which each party has a vested interest in the success 

11 of the franchised business. 

12 (3) Most prospective franchisees lack bar13 gaining power and generally invest substantial 

14 amounts to obtain a franchise business when they 

15 are unfamiliar with operating a business, with the 

16 business being franchised, and with industry prac17 tices in franchising. 

18 (4) Franchisees invest a substantial amount of 

19 their own money, take loans (often secured by their 

20 own home and retirement accounts, and the AmerVerDate Sep 11 2014 21:45 Jan 25, 2017 Jkt 069200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H470.IH H470

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1 ican taxpayer via loans guaranteed by the Small 

2 Business Administration), and enter into long-term 

3 commercial leases and other obligations for the fran4 chise businesses in order to support themselves and 

5 their families. 

6 (5) Franchise agreements reflect a profound 

7 imbalance of contractual power in favor of the 

8 franchisor, and fail to give due regard to the legiti9 mate business interests of the franchisee, as a result 

10 of the franchisor reserving one-sided and pervasive 

11 contractual rights over the franchise relationship. 

12 (6) Franchisees may suffer substantial financial 

13 losses when the franchisor does not provide truthful 

14 or complete information regarding the franchise op15 portunity, or where the franchisor does not act in 

16 good faith or in a commercially reasonable manner 

17 in the performance of the franchise agreement. 

18 (7) Unlike investments in securities, an invest19 ment in a franchise may lead to substantial addi20 tional losses well beyond the initial capital invest21 ment. Unlike employment, due to long-term contrac22 tual and lease obligations, franchisees generally can23 not simply resign and leave the franchised business 

24 without substantial liabilities. 


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1 (8) Traditional common law doctrines have not 

2 evolved sufficiently to protect franchisees adequately 

3 from fraudulent or unfair practices in the sale and 

4 operation of franchise businesses, and significant 

5 contractual and procedural restrictions have denied 

6 franchisees adequate legal recourse to protect their 

7 interests in such businesses. 

8 (9) Contractual obligations of the franchisee to 

9 the franchisor may create an environment that 

10 makes it difficult to pay workers significantly above 

11 minimum wage or provide reasonable benefits to 

12 workers. 

13 (10) A franchisee’s freedom to achieve a con14 tract negotiated at arm’s length is greatly limited by 

15 the disparity of bargaining power, lack of consistent 

16 legal standards, and other factors described above. 

17 This Act is necessary to restore true freedom to con18 tract, and to improve the living standards of employ19 ees of franchises. 

20 (11) The Federal Government has had a signifi21 cant interest in regulating franchising and has regu22 lated franchising for over 40 years through the Fed23 eral Trade Commission and its Franchise Rule. 

24 (b) PURPOSE.—It is the purpose of this Act to— 


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1 (1) promote the compelling interest of the pub2 lic in fair business relations between franchisees and 

3 franchisors; 

4 (2) protect franchisees against unfair treatment 

5 by franchisors, who inherently have superior eco6 nomic power and superior bargaining power in the 

7 negotiation of the terms and conditions of the fran8 chise relationship; 

9 (3) provide franchisees with rights and remedies 

10 in addition to those existing by contract or common 

11 law; 

12 (4) govern franchise agreements, including any 

13 renewals or amendments, to the full extent con14 sistent with the Constitution of the United States; 

15 and 

16 (5) create an environment that gives franchisees 

17 opportunity to thrive, therefore having the oppor18 tunity to provide better wages and benefits to their 

19 employees. 

20 SEC. 3. UNFAIR FRANCHISE PRACTICES. 

21 (a) MISREPRESENTATIONS IN REQUIRED DISCLO22 SURE.—In connection with any disclosure document, no23 tice, or report required by any Federal, State, or local law, 

24 it shall be unlawful for any franchise seller, either directly 

25 or indirectly through another person— 


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1 (1) to— 

2 (A) make an untrue statement of material 

3 fact; 

4 (B) fail to state a material fact; or 

5 (C) fail to state any fact which would 

6 render any required statement or disclosure ei7 ther untrue or misleading; and 

8 (2) fail to furnish any prospective franchisee 

9 with— 

10 (A) all information required to be disclosed 

11 by law and at the time and in the manner re12 quired; 

13 (B) a written statement specifying, promi14 nently and in not less than 14-point type, 

15 whether the franchise agreement involved con16 tains a right to renew such agreement; and 

17 (C) historical financial performance data 

18 including sales, expenses, and profitability data, 

19 in the disclosure document or to make any 

20 claim or representation to a prospective 

21 franchisee whether orally or in writing, which is 

22 inconsistent with, or which contradicts, the 

23 franchisor’s disclosure document. 

24 (b) DECEPTIVE AND DISCRIMINATORY PRACTICES.— 

25 In connection with the performance, enforcement, renewal, 


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1 or termination of any franchise agreement, it shall be un2 lawful for a franchisor or subfranchisor, either directly or 

3 indirectly through another person, to do any of the fol4 lowing: 

5 (1) To engage in an act, practice, course of 

6 business, or pattern of conduct which operates as a 

7 fraud upon any person. 

8 (2) To hinder, prohibit, or penalize (or threaten 

9 to hinder, prohibit, or penalize), directly or indi10 rectly, the free association of franchisees for any 

11 lawful purpose, including the formation of or partici12 pation in any trade association made up of 

13 franchisees or of associations of franchisees. 

14 (3) To discriminate against a franchisee by im15 posing requirements not imposed on other similarly 

16 situated franchisees. 

17 (4) To otherwise retaliate, directly or indirectly, 

18 against any franchisee for membership or participa19 tion in a franchisee association. 

20 (5) To charge excessive and unreasonable re21 newal fees. Fees shall not be deemed excessive and 

22 unreasonable if they do not exceed 50 percent of the 

23 amount of the average initial franchise fee or other 

24 required payments then being charged to all 

25 franchisees in the market. 


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1 (6) To enforce a clause or provision in a fran2 chise agreement requiring the parties to submit to 

3 arbitration unless the parties, each being rep4 resented by counsel, have voluntarily entered into an 

5 agreement after the dispute arises to submit the dis6 pute to arbitration, and then only if the arbitration 

7 is conducted at a location reasonably convenient to 

8 the franchisee; provided, however, that the provisions 

9 of this subsection shall not prohibit the enforce10 ability of a clause or provision in a franchise agree11 ment which requires the parties to submit to non12 binding mediation conducted at a location reasonably 

13 convenient to the franchisee. 

14 (7) To terminate, cancel, or fail to renew a 

15 franchise for the failure or refusal of the franchisee 

16 to do any of the following: 

17 (A) Refusal to take part in any pro18 motional campaign which is not reasonable, im19 plemented in good faith, and expected to pro20 mote the profitability of the franchisee’s busi21 ness. 

22 (B) Failure to meet sales quotas suggested 

23 or required by the franchisor not expressly set 

24 forth in the franchise agreement. 


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1 (C) Failure or refusal to sell any products 

2 or services at a price suggested or required by 

3 the franchisor, an affiliate of the franchisor, or 

4 any supplier approved by the franchisor. 

5 (D) Refusal to keep the franchised prem6 ises open and operating during hours which are 

7 unprofitable to the franchisee or to preclude the 

8 franchisee from establishing its own hours of 

9 operation or nonoperation for the period be10 tween the hours of 10 p.m. and 6 a.m., unless 

11 said business is commonly recognized as an ex12 tended hour business or the initial signed fran13 chise agreement required operating during these 

14 hours. 

15 (E) Refusal to give the franchisor or any 

16 supplier financial records of the operation of 

17 the franchise which are not related or unneces18 sary to the performance of franchisee’s express 

19 obligations under the franchise agreement or 

20 records unrelated to the franchise business. 

21 (8) To restrict a franchisee from associating 

22 with other franchisees or from joining, leading, or 

23 otherwise participating in a trade or other associa24 tion, or retaliate against a franchisee for engaging in 

25 these activities. 


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1 (9) To require or prohibit any change in man2 agement of any franchise unless the requirement or 

3 prohibition of the change shall be for good cause, 

4 which cause shall be stated in writing by the 

5 franchisor and be based on violations of material, 

6 reasonable and reasonably required express provi7 sions of the franchise agreement. Good cause shall 

8 include requiring that management of the franchise 

9 be conducted by— 

10 (A) personnel who have been trained in the 

11 manner required of all franchise managers in 

12 the system; and 

13 (B) personnel who are legally eligible for 

14 employment in the United States of America. 

15 (10) To impose on a franchisee by contract, 

16 rule, or regulation, whether written or oral, a stand17 ard of conduct or performance unless the franchisor, 

18 its agents or representatives, sustain the burden of 

19 proving the standard to be reasonable, necessary, 

20 and uniformly enforced and applied throughout its 

21 system of franchisees, franchisor-owned units and li22 censees. The following are examples of unreasonable 

23 conduct: 

24 (A) To fail to deal fairly and in good faith 

25 or fail to exercise due care with a franchisee or 


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1 any association or other aggregation or incorpo2 ration of franchisees in all business matters, in3 cluding— 

4 (i) proposed and actual transfer of the 

5 franchise; 

6 (ii) administration of advertising 

7 funds, rewards programs, and marketing 

8 funds; and 

9 (iii) the interpretation, administration, 

10 and performance of franchise agreements 

11 and area development or territory agree12 ments. 

13 (B) To sell, rent, or offer to sell to a 

14 franchisee or require a franchisee to buy any 

15 product or service for more than a fair and rea16 sonable price or without the reasonable expecta17 tion that the sale or rental transaction itself 

18 will be profitable for the franchisee’s business. 

19 (C) To discriminate between franchisees in 

20 the charges offered or made for royalties, 

21 goods, services, equipment, rentals, advertising 

22 services, or in any other business dealing, un23 less that discrimination between franchisees— 


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1 (i) would be necessary to allow a par2 ticular franchisee to fairly meet competi3 tion in the open market; 

4 (ii) does not adversely affect the busi5 ness of any existing franchisee; and 

6 (iii) to the extent that the franchisor 

7 satisfies the burden of proving that any 

8 classification of or discrimination between 

9 franchisees is reasonable, the discrimina10 tion is based on franchises granted at ma11 terially different times and the discrimina12 tion is reasonably related to the difference 

13 in time or on other proper and justifiable 

14 distinctions, and is not arbitrary or in15 tended to be for the benefit of the 

16 franchisor at the expense of any 

17 franchisee. Nothing in this subsection shall 

18 be construed as granting to a franchisor 

19 any right which may be limited by any 

20 other State or Federal statute. 

21 (D) To notify the franchisee of a claimed 

22 breach of the franchise agreement no later than 

23 180 days from the date the breach arises or 

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1 ercise of reasonable care should have known of 

2 the claimed breach. 

3 (E) To require a franchisee to keep the 

4 franchised premises open and operating during 

5 hours which are unprofitable to the franchisee 

6 or to preclude the franchisee from establishing 

7 its own hours of operation or nonoperation be8 tween the hours of 10 p.m. and 6 a.m., unless 

9 said business is commonly recognized as an ex10 tended hour business, or the initial signed fran11 chise agreement required operating during these 

12 hours. 

13 (F) To require a franchisee to include non14 compete language in employment contracts with 

15 its employees. 

16 (G) To fail to, without charge, make read17 ily available to franchisees, and provide a phys18 ical copy of true, accurate, and complete copies 

19 of all records and accountings of marketing, re20 wards programs, advertising funds, and fees 

21 that have been paid by franchisees, vendors, 

22 suppliers, and licensees. 

23 (H) To impose performance standards on 

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1 formance standards are reasonable, necessary, 

2 and uniformly enforced. 

3 (I) To require or request a franchisee to 

4 assent to a release, assignment, novation, waiv5 er, or estoppel which would prospectively relieve 

6 any person from liability imposed by this chap7 ter. 

8 (J) To require or demand that a franchisee 

9 pay liquidated or other post-termination dam10 ages in excess of the average monthly royalty 

11 fees paid by the franchisee during the prior 12 

12 full calendar months (or the shorter time that 

13 the franchised location has been in the system), 

14 multiplied by the lesser of 6 months or the 

15 number of months remaining in the term of the 

16 franchise agreement. 

17 (K) To act to accomplish, either directly or 

18 indirectly through any parent company, sub19 sidiary, affiliate, or agent, what would otherwise 

20 be prohibited under this chapter on the part of 

21 the manufacturer or distributor. 

22 SEC. 4. STANDARDS OF CONDUCT. 

23 (a) DUTY OF GOOD FAITH.— 


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1 (1) A franchise contract imposes on each party 

2 thereto a duty to act in good faith in its perform3 ance and enforcement. 

4 (2) As used in this subsection, a duty of good 

5 faith shall— 

6 (A) obligate a party to a franchise to do 

7 nothing that will have the effect of destroying 

8 or injuring the right of the other party to ob9 tain and receive the expected fruits of the con10 tract; 

11 (B) obligate a party to do everything re12 quired under the contract to accomplish the 

13 purposes of the contract; and 

14 (C) require honesty in fact and observance 

15 of reasonable standards of fair dealing in the 

16 trade. 

17 (3) No provision of any franchise agreement, 

18 express or implied, shall be interpreted or enforced 

19 in such a way as to obfuscate or avoid a party’s duty 

20 to act reasonably and in good faith with the other, 

21 or otherwise allow a disparate result in the franchise 

22 relationship. 

23 (b) DUTY OF DUE CARE.— 

24 (1) A franchise agreement imposes on the 

25 franchisor a duty of due care. Unless a franchisor 


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1 represents that it has greater skill or knowledge in 

2 its undertaking with its franchisees, or conspicuously 

3 disclaims that it has any skill or knowledge, the 

4 franchisor is required to exercise the skill and knowl5 edge normally possessed by franchisors in good 

6 standing in the same or similar types of business. 

7 (2) For purposes of this subsection— 

8 (A) the term ‘‘skill or knowledge’’ means 

9 something more than the mere minimum level 

10 of skill or knowledge required of any person en11 gaging in a service or business and involves a 

12 special level of expertise— 

13 (i) which is the result of acquired 

14 learning and aptitude developed by special 

15 training and experience in the business to 

16 be licensed under the franchise agreement, 

17 or the result of extensive use and experi18 ence with the goods or services or the oper19 ating system of such business; 

20 (ii) which is the result of experience in 

21 organizing a franchise system and in pro22 viding training, assistance and services to 

23 franchisees; and 

24 (iii) which a prospective franchisee 

25 would expect in reasonable reliance on the 


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1 written and oral commitments and rep2 resentations of the franchisor; and 

3 (B) a franchisor shall be permitted to show 

4 that it contracted for, hired, or purchased the 

5 expertise necessary to comply with the require6 ments of this subsection and that such expertise 

7 was incorporated in the franchise or commu8 nicated or provided to the franchisee. 

9 (3) The requirement of this subsection may not 

10 be waived by agreement or by conduct, but the 

11 franchisor may limit in writing the nature and scope 

12 of its skill and knowledge, and of its undertaking 

13 with a prospective franchisee, by stating that it 

14 claims no skill or knowledge in a particular area, 

15 provided that no inconsistent representation, wheth16 er written or oral, is made to the prospective 

17 franchisee irrespective of any merger or integration 

18 clause in the franchise agreement. 

19 SEC. 5. PROCEDURAL FAIRNESS. 

20 (a) IN GENERAL.—It shall be unlawful for any 

21 franchisor, either directly or indirectly through another 

22 person, to— 

23 (1) require any term or condition in a franchise 

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1 eral to a franchise, which directly or indirectly vio2 lates any provision of this Act; 

3 (2) require a franchisee to assent to any dis4 claimer, waiver, release, stipulation, or other provi5 sion which would purport— 

6 (A) to relieve any person from a duty im7 posed by this Act, except as part of a settle8 ment of a preexisting bona fide dispute; or 

9 (B) to protect any person against any li10 ability to which he would otherwise be subject 

11 under this Act by reason of willful misfeasance, 

12 bad faith, or gross negligence in the perform13 ance of duties, or by reason of reckless dis14 regard of obligations and duties under the fran15 chise agreement; or 

16 (3) require a franchisee to assent to any waiver, 

17 release, stipulation, or other provision, either as part 

18 of any agreement or document relating to the oper19 ation of a franchise business, in any agreement or 

20 document relating to the termination, cancellation, 

21 forfeiture, repurchase, or resale of a franchise busi22 ness, or as a condition for permitting a franchisee 

23 to leave the franchise system, which would purport 

24 to prevent the franchisee from making any oral or 

25 written statement relating to the franchise business, 


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1 to the operation of the franchise system, or to the 

2 franchisee’s experience with the franchise business. 

3 (b) TERMS OF AGREEMENT.—Any condition, stipula4 tion, provision, or term of any franchise agreement, or any 

5 agreement ancillary or collateral to a franchise, which 

6 would purport to waive or restrict any right granted under 

7 this Act shall be void and unenforceable. No stipulation 

8 or provision of a franchise agreement, or of an agreement 

9 ancillary or collateral to a franchise, shall— 

10 (1) deprive a franchisee of the application and 

11 benefits of this Act, of any other Federal law, or of 

12 the law of any State in which the franchisee is a 

13 resident, or in which the franchisee’s place of busi14 ness is located; 

15 (2) deprive a franchisee of the right to com16 mence an action against the franchisor for violation 

17 of this Act, or for breach of the franchise agreement, 

18 or of any agreement or stipulation ancillary or col19 lateral to the franchise, in a court in the State of 

20 the franchisee’s principal place of business; or 

21 (3) prevent a franchisee from bringing or par22 ticipating in any of the following actions: 

23 (A) A consolidated action or consolidated 

24 arbitration. 

25 (B) A mass action or mass arbitration. 


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1 (C) A class action under Rule 23 of the 

2 Federal Rules of Civil Procedure. 

3 (D) A class arbitration as authorized by 

4 the American Arbitration Association Supple5 mentary Rules for Class Arbitrations. 

6 (E) A similar consolidated, mass, or class 

7 proceeding permissible under State or Federal 

8 statutory or common law, or under the rules of 

9 any other arbitration association. 

10 (c) NO WAIVERS.—Compliance with this Act or with 

11 an applicable State franchise law is not waived, excused, 

12 or avoided, and evidence of violation of this Act or of such 

13 State law shall not be excluded, by virtue of an integration 

14 clause, any choice-of-law, choice-of-venue or any other pro15 vision of a franchise agreement, or an agreement ancillary 

16 or collateral to a franchise, the parol evidence rule, or any 

17 other rule of evidence purporting to exclude consideration 

18 of matters outside the franchise agreement. 

19 SEC. 6. TRANSFER OF A FRANCHISE. 

20 (a) TRANSFER OF INTEREST.—A franchisee may as21 sign an interest in a franchised business or in a franchise 

22 to a transferee provided the transferee satisfies the rea23 sonable qualifications then generally applied by the 

24 franchisor in the offer and sale of franchises. For the pur25 pose of this section, a reasonable current qualification for 


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1 a new franchisee is a qualification based upon a legitimate 

2 business reason. If the proposed transferee does not meet 

3 the reasonable current qualifications of the franchisor, the 

4 franchisor may refuse to permit the transfer, provided 

5 that the refusal of the franchisor to consent to the transfer 

6 is not arbitrary or capricious and the franchisor states the 

7 grounds for its refusal in writing to the franchisee. 

8 (b) NOTICE.—A franchisee shall give a franchisor not 

9 less than 60 days written notice of a proposed transfer 

10 of a transferable interest, and on request shall provide in 

11 writing the ownership interests of all persons holding or 

12 claiming an equitable or beneficial interest in the franchise 

13 subsequent to the transfer or the franchisee, as appro14 priate. 

15 (c) CONSENT IMPLIED.—A transfer by a franchisee 

16 is considered to have been approved 60 days after the 

17 franchisee submits the request for permission to transfer 

18 the franchise involved unless, within that time the 

19 franchisor refuses to consent to the transfer as evidenced 

20 in writing in accordance with subsection (a). 

21 (d) CONDITIONS.—A franchisor may require as a 

22 condition of a transfer that— 

23 (1) the transferee successfully complete a rea24 sonable training program; 


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1 (2) a reasonable transfer fee be paid to reim2 burse the franchisor for the franchisor’s reasonable 

3 and actual expenses directly attributable to the 

4 transfer; 

5 (3) the transferring franchisee pay or make rea6 sonable provision to pay any amount due the 

7 franchisor or the franchisor’s affiliate; or 

8 (4) the financial terms of the transfer at the 

9 time of the transfer, comply with the franchisor’s 

10 current financial requirements for franchisees. 

11 (e) PROHIBITED CONDITIONS.—A franchisor may 

12 not condition its consent to a transfer described in sub13 section (a) on— 

14 (1) franchisee’s forgoing existing rights other 

15 than those contained in the franchise agreement; 

16 (2) a franchisee’s entering into a release of 

17 claims broader in scope than a counterpart release 

18 of claims offered by the franchisor to the franchisee; 

19 or 

20 (3) requiring the franchisee or transferee to 

21 make, or agree to make, capital improvements, rein22 vestments, or purchases in an amount greater than 

23 the franchisor could have reasonably required under 

24 the terms of the franchisee’s existing franchise 

25 agreement. 


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1 (f) NO ADDITIONAL AGREEMENT REQUIRED AFTER

2 TRANSFER.—A franchisee may assign the franchisee’s in3 terest in the franchise for the unexpired term of the fran4 chise agreement, and a franchisor shall not require the 

5 franchisee or the transferee to enter into a franchise 

6 agreement that has different material terms or financial 

7 requirements as a condition of the transfer. 

8 (g) PUBLIC OFFERINGS.—A franchisor may not with9 hold its consent to a franchisee’s making a public offering 

10 of its securities without good cause if the franchisee, or 

11 the owner of the franchisee’s interest in the franchise, re12 tains control over more than 25 percent of the voting 

13 power as the franchisee. 

14 (h) OTHER CONSOLIDATION.—A franchisor may not 

15 withhold its consent to a pooling of interests, to a sale 

16 or exchange of assets or securities, or to any other busi17 ness consolidation amongst its existing franchisees, pro18 vided the constituents are each in material compliance 

19 with their respective obligations to the franchisor. 

20 (i) OCCURRENCES NOT CONSIDERED TRANSFERS.— 

21 The following occurrences shall not be considered trans22 fers requiring the consent of the franchisor under a fran23 chise agreement, and a franchisor shall not impose any 

24 fees, payments, or charges in excess of a franchisor’s cost 

25 to review the relevant matter: 


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1 (1) The succession of ownership or management 

2 of a franchise upon the death or disability of a 

3 franchisee, or of an owner of a franchise, to the sur4 viving spouse, heir, or partner active in the manage5 ment of the franchise unless the successor objec6 tively fails to meet within 1 year the then current 

7 reasonable qualifications of the franchisor for 

8 franchisees. 

9 (2) Incorporation of a proprietorship franchisee, 

10 provided that the franchisor may require a personal 

11 guarantee by the franchisee of obligations related to 

12 the franchise. 

13 (3) A transfer within an existing ownership 

14 group of a franchise provided that more than 50 

15 percent of the franchise is held by persons who meet 

16 the franchisor’s reasonable current qualifications for 

17 franchisees. If less than 50 percent of the franchise 

18 would be owned by persons who objectively meet the 

19 franchisor’s reasonable current qualifications, the 

20 franchisor may refuse to authorize the transfer. 

21 (4) A transfer of less than a controlling interest 

22 in the franchise to the franchisee’s spouse or child 

23 or children, provided that more than 50 percent of 

24 the entire franchise is held by those who meet the 

25 franchisor’s reasonable current qualifications. If less 


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1 than 50 percent of the franchise would be owned by 

2 persons who objectively meet the franchisor’s reason3 able current qualifications, the franchisor may refuse 

4 to authorize the transfer. 

5 (5) A grant or retention of a security interest 

6 in the franchised business or its assets, or an owner7 ship interest in the franchisee, if the security agree8 ment establishes an obligation on the part of the se9 cured party enforceable by the franchisor to give the 

10 franchisor, simultaneously with notice to the 

11 franchisee, notice of the secured party’s intent to 

12 foreclose on the collateral, and a reasonable oppor13 tunity to redeem the interest of the secured party 

14 and recover the secured party’s interest in the fran15 chise or franchised business by satisfying the se16 cured obligation. 

17 (6) A franchisor may not exercise any pur18 ported right of first refusal or right to purchase with 

19 regard to any franchise, or interest or assets of a 

20 franchisee, upon the happening of any event de21 scribed in paragraphs (1) through (5). 

22 (j) CERTAIN COVENANTS UNENFORCEABLE.—After 

23 the transfer of a transferor’s complete interest in a fran24 chise, a franchisor may not enforce against the transferor 

25 any covenant of the franchise agreement purporting to 


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1 prohibit the transferor from engaging in any lawful occu2 pation or enterprise. This subsection shall not limit the 

3 franchisor from enforcing a contractual covenant against 

4 the transferor not to exploit the franchisor’s trade secrets 

5 or intellectual property rights (including protection of 

6 trade dress) except by agreement with the franchisor. 

7 SEC. 7. RENEWAL OF THE FRANCHISE; NOTICE. 

8 (a) IN GENERAL.—A franchisor shall not, directly or 

9 through an officer, agent, or employee, fail to renew a 

10 franchise, except for good cause shown. 

11 (b) FEES.—Renewals shall not be subject to unrea12 sonable fees. Fees shall not be deemed unreasonable if 

13 they do not exceed 50 percent of the amount of the aver14 age initial franchise fee or other required payments then 

15 being charged to all franchisees. 

16 (c) GOOD CAUSE FOR NONRENEWAL.—Good cause 

17 as described in subsection (a) shall be based upon legiti18 mate business reason which shall include, the franchisee’s 

19 refusal or failure to substantially comply with any mate20 rial, reasonable and reasonably necessary express obliga21 tion of the franchise agreement within the 1-year period 

22 prior to renewal, including repeated and intentional non23 payment of royalties, advertising or marketing fees clearly 

24 required by the franchise agreement. 


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1 (d) NOTICE OF NONRENEWAL.—Before nonrenewal 

2 of the franchise, the franchisor shall give the franchisee 

3 written notice at least 90 days in advance of the non4 renewal. The notice shall state all of the reasons consti5 tuting good cause for the nonrenewal and shall provide 

6 that the franchisee has 60 days in which to rectify any 

7 claimed discrepancy and reinstate its right to renew the 

8 franchise. 

9 (e) PRESERVATION OF FEES.—If the franchisor re10 quires the franchisee to sign a new franchise agreement 

11 as a condition of renewal, such franchise agreement shall 

12 contain the same royalties, advertising fees, and other fees 

13 as the expiring agreement, no new fees and any protected 

14 territory in the expiring agreement shall be the same in 

15 the renewal franchise. 

16 (f) PROHIBITED ACTIONS.—A franchisor shall not 

17 prohibit, or enforce a prohibition against, any franchisee 

18 from— 

19 (1) engaging in any business at any location 

20 after expiration of a franchise agreement; or 

21 (2) using the customer list and telephone num22 bers associated with the franchise business. 

23 (g) RULE OF CONSTRUCTION.—Nothing in this sub24 section shall be interpreted to prohibit enforcement of any 


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1 provision of a franchise contract obligating a franchisee 

2 after expiration or termination of a franchise— 

3 (1) to cease or refrain from using a trademark, 

4 other trade secret, or other intellectual property 

5 owned by the franchisor or its affiliate; 

6 (2) to alter the appearance of the business 

7 premises so that it is not substantially similar to the 

8 standard design, decor criteria, trade dress or motif 

9 in use by other franchisees using the same name or 

10 trademarks within the proximate trade or market 

11 area of the business; or 

12 (3) to modify the manner or mode of business 

13 operations so as to avoid any substantial confusion 

14 with the manner or mode of operations which are 

15 unique to the franchisor and commonly in practice 

16 by other franchisees using the same name or trade17 marks within the proximate trade or market area of 

18 the business. 

19 SEC. 8. TERMINATION; GOOD CAUSE; NOTICE; OPPOR20 TUNITY TO CURE. 

21 (a) IN GENERAL.—A franchisor shall not, directly or 

22 through an officer, agent, or employee, terminate or cancel 

23 a franchise, or substantially change the competitive cir24 cumstances of the franchisee, except for good cause 

25 shown. 


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1 (b) DEFAULT PROVISIONS.—A default under one 

2 franchise agreement shall not in and of itself constitute 

3 a default under another franchise agreement to which the 

4 franchisee or an affiliate of the franchisee is a party. Any 

5 cross-default provisions are null and void. 

6 (c) NOTICE.—Prior to termination or cancellation of 

7 the franchise, the franchisor shall give the franchisee writ8 ten notice at least 90 days in advance of the termination. 

9 The notice shall state all of the reasons constituting good 

10 cause for termination or cancellation and shall provide 

11 that the franchisee has 60 days in which to rectify any 

12 claimed defaults. 

13 (d) EXCEPTION TO NOTICE REQUIREMENT.—The re14 quirement for 90 days advance written notice for termi15 nation shall not apply if the reason for termination is be16 cause— 

17 (1) the alleged grounds are voluntary abandon18 ment by the franchisee of the franchise relationship, 

19 in which event, such notice may be given 15 days in 

20 advance of the termination or cancellation; or 

21 (2) the conviction of the franchisee in a court 

22 of competent jurisdiction of an offense, where the 

23 conviction is no longer appealable and the offense 

24 is— 


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1 (A) punishable by a term of imprisonment 

2 in excess of 1 year; 

3 (B) directly related to the business conduct 

4 pursuant to the franchise; or 

5 (C) materially impairs the goodwill value of 

6 the franchise or the franchised trademark. In 

7 that event, such notice may be given at any 

8 time following the date on which the conviction 

9 is no longer appealable and shall be effective 

10 upon delivery and written receipt of the notice. 

11 In no event shall any franchisor collect any fi12 nancial penalty or fee, however delineated, as a 

13 consequence of such conviction. 

14 (e) ADDITIONAL NOTICE.—If the reason for termi15 nation or cancellation is nonpayment of sums due under 

16 the franchise agreement, the franchisee shall be entitled 

17 to written notice of such default, and shall have 15 days 

18 in which to cure such default from the date of such notice. 

19 For such nonpayment defaults a franchisee has the right 

20 to cure 3 times in any 12-month period during the period 

21 of the franchise agreement. 

22 (f) NOTICE OF IMMINENT DANGER.—If the reason 

23 for termination or cancellation is violation of any law or 

24 regulation relating to an imminent danger to public health 

25 or safety the franchisee shall be entitled to immediate 


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1 written notice and shall have 24 hours following receipt 

2 of such notice to cure such violation. 

3 (g) GOOD CAUSE.—A franchisee may terminate a 

4 franchise agreement for good cause shown, without any 

5 further liability to the franchisor. Good cause shall include 

6 changes to the franchise system or the competitive cir7 cumstances of the franchise business, which would cause 

8 substantial negative impact or substantial financial hard9 ship to the franchisee in the operation of its franchise. 

10 SEC. 9. EFFECT OF TERMINATION. 

11 (a) IN GENERAL.—Upon termination of a franchise 

12 for whatever cause or reason, except voluntary relinquish13 ment or abandonment of the franchise by the franchisee 

14 or the expiration of the franchise agreement where the 

15 franchisee does not elect to renew, the franchisor shall 

16 fairly compensate the franchisee or franchisee’s estate for 

17 the fair market value at the time of termination of the 

18 franchise, of the franchisee’s inventory, supplies, equip19 ment, and furnishings purchased by the franchisee from 

20 the franchisor or its approved sources and the fair market 

21 value of the going concern value and good will of the busi22 ness, if any, exclusive of personalized items which have 

23 no value to the franchisor and inventory, supplies, equip24 ment, and furnishings not reasonably required in the con25 duct of the franchise business; provided, however, that— 


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1 (1) compensation need not be made to 

2 franchisee of going concern value and good will if 

3 the franchisor agrees in writing not to enforce a cov4 enant which restrains the franchisee from competing 

5 with the franchisor in the same or substantially 

6 similar business in the same or substantially similar 

7 manner at the same location using the same prop8 erty except the franchisor’s registered trademark or 

9 trade name; and 

10 (2) a franchisor may offset against amounts 

11 owed to a franchisee under this subsection any 

12 amount mutual agreed upon and owed by the 

13 franchisee to franchisor which is not the subject of 

14 a good faith dispute by the franchisee. 

15 (b) RULE OF CONSTRUCTION.—The provisions of this 

16 section shall not be construed to permit the termination 

17 or nonrenewal of any franchise agreement except in ac18 cordance with the express terms of the franchise agree19 ment and this Act. 

20 SEC. 10. TRANSFER OF FRANCHISE BY FRANCHISOR. 

21 A franchisor shall not transfer, by sale or otherwise, 

22 its interest in a franchise system unless— 

23 (1) the franchisor provides, not less than 30 

24 days before the effective date of transfer, notice to 

25 every franchisee of the intent to transfer the 


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1 franchisor’s interest in the franchise or of substan2 tially all of the franchises held by the franchisor; 

3 (2) such notice is accompanied by a complete 

4 description of the business and financial terms of 

5 the proposed transfer or transfers; and 

6 (3) upon the transfer, the entity assuming the 

7 franchisor’s obligations has the business experience 

8 and financial means to adequately perform all of the 

9 franchisor’s obligations in the ordinary course of 

10 business. 

11 SEC. 11. PRIVATE RIGHT OF ACTION. 

12 (a) IN GENERAL.—A franchisee who is injured by a 

13 violation or threatened violation of this Act, or of section 

14 436.1 of title 16, Code of Federal Regulations (relating 

15 to disclosure requirements and prohibitions concerning 

16 franchising and business opportunity ventures), as in ef17 fect on the date of the enactment of this Act, may bring 

18 a private right of action in any court of appropriate juris19 diction for rescission and restitution, as well as for all 

20 damages and maybe awarded injunctive relief against a 

21 violation or threatened violation of this Act or such sec22 tion. The franchisee shall also be entitled to recover its 

23 costs of litigation and reasonable attorney’s fees and ex24 pert witness fees, against any entity or person found to 

25 be liable for such violation. 


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1 (b) LIABILITY.—Every person who directly or indi2 rectly controls a person liable under subsection (a), every 

3 partner in a firm so liable, every principal executive officer 

4 or director of a corporation so liable, every person occu5 pying a similar status or performing similar functions and 

6 every employee of a person so liable who materially aids 

7 in the act or transaction constituting the violation is also 

8 liable jointly and severally with and to the same extent 

9 as such person, unless the person who would otherwise be 

10 liable hereunder had no knowledge of or reasonable 

11 grounds to know of the existence of the facts by reason 

12 of which the liability is alleged to exist. 

13 (c) STATUTE OF LIMITATIONS.—No action may be 

14 commenced pursuant to this section or this Act more than 

15 the later of— 

16 (1) 5 years after the date on which the violation 

17 occurs; or 

18 (2) 3 years after the date on which the violation 

19 is discovered or should have been discovered through 

20 exercise of reasonable diligence. 

21 (d) VENUE.—A franchisee may commence a civil ac22 tion to enforce any provision of this Act within the juris23 diction wherein the applicable franchisee is a resident or 

24 where the applicable business is located. 


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1 (e) CUMULATIVE RIGHT.—The private rights pro2 vided for in this section are in addition to and not in lieu 

3 of other rights or remedies created by Federal or State 

4 law. 

5 SEC. 12. SCOPE AND APPLICABILITY. 

6 (a) PROSPECTIVE APPLICATION.—Except as pro7 vided in subsection (b), the requirements of this Act shall 

8 apply to franchise agreements entered into, amended, ex9 changed, transferred, assigned, or renewed after the date 

10 of enactment of this Act. 

11 (b) DELAYED EFFECT.—The requirements of section 

12 3 of this Act shall take effect 90 days after the date of 

13 enactment of this Act and shall apply only to actions, 

14 practices, disclosures, and statements occurring on or 

15 after such date. 

16 SEC. 13. DEFINITIONS. 

17 For purposes of this Act, the following definitions 

18 apply: 

19 (1) The term ‘‘affiliate’’ has the meaning given 

20 the term ‘‘affiliated person’’ in section 436.1(b) of 

21 title 16 of the Code of Federal Regulations as in ef22 fect on July 1, 2007. 

23 (2) The term ‘‘disclosure document’’ means ei24 ther the disclosure statement required by the Fed25 eral Trade Commission in Trade Regulation Rule 


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1 436 (16 C.F.R. 436) as amended from time to time, 

2 or any offering format allowed or required by State 

3 or local law. 

4 (3) The term ‘‘franchise’’ has the meaning 

5 given such term in section 436.1(h) of title 16 of the 

6 Code of Federal Regulations as in effect on July 1, 

7 2007, but does not include any contract otherwise 

8 regulated by the Federal Petroleum Marketing Prac9 tices Act (15 U.S.C. 2801 et seq.) except as to fran10 chise relationships that do not involve the sale of pe11 troleum products. 

12 (4) The term ‘‘franchise seller’’ has the mean13 ing given such term in section 436.1(j) of title 16 

14 of the Code of Federal Regulations as in effect on 

15 July 1, 2007. 

16 (5) The term ‘‘franchisee’’ has the meaning 

17 given such term in section 436.1(i) of title 16 of the 

18 Code of Federal Regulations as in effect on July 1, 

19 2007. 

20 (6) The term ‘‘franchisor’’ has the meaning 

21 given such term in section 436.1(k) of title 16 of the 

22 Code of Federal Regulations as in effect on July 1, 

23 2007. 

24 (7) The terms ‘‘material’’ and ‘‘material fact’’ 

25 include— 


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1 (A) any fact, circumstance, or set of condi2 tions which a reasonable franchisee or a reason3 able prospective franchisee would consider im4 portant in making a significant decision relat5 ing to entering into, remaining in, or aban6 doning a franchise relationship; and 

7 (B) any fact, circumstance, or set of condi8 tions which has, or may have, any significant fi9 nancial impact on a franchisor, franchisee, or a 

10 prospective franchisee. 

11 (8) The term ‘‘offer’’ or ‘‘offering’’ means any 

12 effort to offer or to dispose of, or solicitation of an 

13 offer to buy, a franchise or interest in a franchise 

14 for value. 

15 (9) The term ‘‘outlet’’ means a point of sale, 

16 temporary or permanent, fixed or mobile, from 

17 which goods or services are offered for sale. 

18 (10) The term ‘‘person’’ means either an indi19 vidual or any other legal or commercial entity. 

20 (11) The term ‘‘State’’ means a State, the Dis21 trict of Columbia, and any territory or possession of 

22 the United States. 

23 (12) The term ‘‘subfranchise’’ means a contract 

24 or an agreement by which a person pays a 


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1 franchisor for the right to sell, negotiate the sale, or 

2 provide service franchises. 

3 (13) The term ‘‘subfranchisor’’ means a person 

4 who is granted a subfranchise. 

5 (14) The term ‘‘trade secret’’ means informa6 tion, including a formula, pattern, compilation, pro7 gram, device, method, technique, or process, that— 

8 (A) derives independent economic value, 

9 actual or potential, from not being generally 

10 known to, and not being readily ascertainable 

11 by proper means by, other persons who can ob12 tain economic value from its disclosure or use; 

13 and 

14 (B) is the subject of efforts that are rea15 sonable under the circumstances to maintain its 

16 secrecy. 

17 (15) The terms ‘‘nonrenewal’’ and ‘‘nonrenew’’ 

18 mean that the franchisor fails or refuses to extend 

19 the franchisor-franchisee relationship at the end of 

20 the existing term of the franchise agreement, irre21 spective of whether the franchise agreement contains 

22 any contractual right to obtain a renewal term. Al23 lowing a franchise agreement with no renewal term 

24 to expire shall be considered to be a ‘‘nonrenewal’’ 

25 for purposes of this Act. 


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1 SEC. 14. SEVERABILITY. 

2 If any provision or clause of this section or any appli3 cation of this section to any person or circumstances is 

4 held invalid, such invalidity shall not affect other provi5 sions or applications of the section which can be given ef6 fect without the invalid provision or application, and to 

7 this end the provisions of this section are declared to be 

8 severable. 

9 SEC. 15. STATE ATTORNEYS GENERAL. 

10 (a) CIVIL ACTION.—Whenever an attorney general 

11 (or similar enforcement officer of a State, however de12 nominated, hereinafter ‘‘attorney general’’) of any State 

13 has reason to believe that the interests of the residents 

14 of that State have been or are being threatened or ad15 versely affected because any person has engaged or is en16 gaging in a pattern or practice which violates any provi17 sion of this Act, the State, as parens patriae, may bring 

18 a civil action on behalf of its residents in an appropriate 

19 State court or district court of the United States to enjoin 

20 such violations, to obtain damages, restitution or other 

21 compensation on behalf of residents of such State or to 

22 obtain such further and other relief as the court may deem 

23 appropriate. 

24 (b) PRESERVATION OF POWER.—For purposes of 

25 bringing any civil action under subsection (a), nothing in 

26 this Act shall prevent an attorney general from exercising 


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1 the powers conferred on the attorney general by the laws 

2 of such State to conduct investigations or to administer 

3 oaths or affirmations or to compel the attendance of wit4 nesses or the production of documentary and other evi5 dence. 

6 (c) VENUE.—Any civil action brought under sub7 section (a) in a district court of the United States may 

8 be brought in the district in which the defendant is found, 

9 is an inhabitant, or transacts business, or wherever venue 

10 is proper under section 1391 of title 28, United States 

11 Code. Process in such action may be served in any district 

12 in which the defendant is an inhabitant or in which the 

13 defendant may be found. 

14 (d) NO PREEMPTION.—Nothing contained in this 

15 section shall prohibit an authorized State official from pro16 ceeding in State court on the basis of an alleged violation 

17 of any civil or criminal statute of such State. 

Æ 


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