Those minority cases finding encroachment when a franchiser opened company outlets, sold new franchised operations or sold products through alternate distribution channels in close proximity to an existing franchisee have been widely criticized. Effect on Franchising. The Proposed Act would make the current minority viewpoint the law and place the burden on the franchiser to prove that the franchisee's decline in sales did not result from opening the new outlet. The franchisee will effectively receive territorial protection even where the territory granted by the franchise agreement is non-exclusive. Duty of Good Faith Current Law.
Franchise agreements are subject to an implied covenant of good faith and fair dealing.
However, most courts have refused to allow the implied covenant to override express provisions of a franchise agreement. A franchiser would be prohibited from doing anything that would injure a franchisee's right to receive the benefits of its franchise. Effect on Franchising. Specifically, this might effectively provide territorial protection to a franchisee with a non-exclusive territory. More generally, however, it would allow a court to rewrite the entire franchise relationship despite the terms agreed upon by the franchiser and franchisee after good faith negotiation.