(i) would be necessary to allow a par-
ticular franchisee to fairly meet competi-
tion in the open market; 
(ii) does not adversely affect the busi-
ness of any existing franchisee; and 
(iii) to the extent that the franchisor 
satisfies the burden of proving that any 
classification of or discrimination between 
franchisees is reasonable, the discrimina-
tion is based on franchises granted at ma-
terially different times and the discrimina-
tion is reasonably related to the difference 
in time or on other proper and justifiable 
distinctions, and is not arbitrary or in-
tended 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. 
(D) 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 ex-
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ercise of reasonable care should have known of 
the claimed breach. 
(E) 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 be-
tween the hours of 10 p.m. and 6 a.m., unless 
said business is commonly recognized as an ex-
tended hour business, or the initial signed fran-
chise agreement required operating during these 
hours. 
(F) To require a franchisee to include non-
compete language in employment contracts with 
its employees. 
(G) To fail to, without charge, make read-
ily available to franchisees, and provide a phys-
ical copy of true, accurate, and complete copies 
of all records and accountings of marketing, re-
wards programs, advertising funds, and fees 
that have been paid by franchisees, vendors, 
suppliers, and licensees. 
(H) To impose performance standards on 
franchises unless the franchisor proves the per-
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formance standards are reasonable, necessary, 
and uniformly enforced. 
(I) To require or request a franchisee to 
assent to a release, assignment, novation, waiv-
er, or estoppel which would prospectively relieve 
any person from liability imposed by this chap-
ter. 
(J) To require or demand that a franchisee 
pay liquidated or other post-termination dam-
ages 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. 
(K) To act to accomplish, either directly or 
indirectly through any parent company, sub-
sidiary, affiliate, or agent, what would otherwise 
be prohibited under this chapter on the part of 
the manufacturer or distributor. 
SEC. 4. STANDARDS OF CONDUCT. 
(a) DUTY OF GOOD FAITH.— 
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(1) A franchise contract imposes on each party 
thereto a duty to act in good faith in its perform-
ance and enforcement. 
(2) As used in this subsection, a duty of good 
faith shall— 
(A) obligate a party to a franchise to do 
nothing that will have the effect of destroying 
or injuring the right of the other party to ob-
tain and receive the expected fruits of the con-
tract; 
(B) obligate a party to do everything re-
quired under the contract to accomplish the 
purposes of the contract; and 
(C) require honesty in fact and observance 
of reasonable standards of fair dealing in the 
trade. 
(3) No provision of any franchise agreement, 
express or implied, shall be interpreted or enforced 
in such a way as to obfuscate or avoid a party’s duty 
to act reasonably and in good faith with the other, 
or otherwise allow a disparate result in the franchise 
relationship. 
(b) DUTY OF DUE CARE.— 
(1) A franchise agreement imposes on the 
franchisor a duty of due care. Unless a franchisor 
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represents that it has greater skill or knowledge in 
its undertaking with its franchisees, or conspicuously 
disclaims that it has any skill or knowledge, the 
franchisor is required to exercise the skill and knowl-
edge normally possessed by franchisors in good 
standing in the same or similar types of business. 
(2) For purposes of this subsection— 
(A) the term ‘‘skill or knowledge’’ means 
something more than the mere minimum level 
of skill or knowledge required of any person en-
gaging in a service or business and involves a 
special level of expertise— 
(i) which is the result of acquired 
learning and aptitude developed by special 
training and experience in the business to 
be licensed under the franchise agreement, 
or the result of extensive use and experi-
ence with the goods or services or the oper-
ating system of such business; 
(ii) which is the result of experience in 
organizing a franchise system and in pro-
viding training, assistance and services to 
franchisees; and 
(iii) which a prospective franchisee 
would expect in reasonable reliance on the 
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written and oral commitments and rep-
resentations of the franchisor; and 
(B) a franchisor shall be permitted to show 
that it contracted for, hired, or purchased the 
expertise necessary to comply with the require-
ments of this subsection and that such expertise 
was incorporated in the franchise or commu-
nicated or provided to the franchisee. 
(3) The requirement of this subsection may not 
be waived by agreement or by conduct, but the 
franchisor may limit in writing the nature and scope 
of its skill and knowledge, and of its undertaking 
with a prospective franchisee, by stating that it 
claims no skill or knowledge in a particular area, 
provided that no inconsistent representation, wheth-
er written or oral, is made to the prospective 
franchisee irrespective of any merger or integration 
clause in the franchise agreement. 
SEC. 5. PROCEDURAL FAIRNESS. 
(a) IN GENERAL.—It shall be unlawful for any 
franchisor, either directly or indirectly through another 
person, to— 
(1) require any term or condition in a franchise 
agreement, or in any agreement ancillary or collat-
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eral to a franchise, which directly or indirectly vio-
lates any provision of this Act; 
(2) require a franchisee to assent to any dis-
claimer, waiver, release, stipulation, or other provi-
sion which would purport— 
(A) to relieve any person from a duty im-
posed by this Act, except as part of a settle-
ment of a preexisting bona fide dispute; or 
(B) to protect any person against any li-
ability to which he would otherwise be subject 
under this Act by reason of willful misfeasance, 
bad faith, or gross negligence in the perform-
ance of duties, or by reason of reckless dis-
regard of obligations and duties under the fran-
chise agreement; or 
(3) require a franchisee to assent to any waiver, 
release, stipulation, or other provision, either as part 
of any agreement or document relating to the oper-
ation of a franchise business, in any agreement or 
document relating to the termination, cancellation, 
forfeiture, repurchase, or resale of a franchise busi-
ness, or as a condition for permitting a franchisee 
to leave the franchise system, which would purport 
to prevent the franchisee from making any oral or 
written statement relating to the franchise business, 
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to the operation of the franchise system, or to the 
franchisee’s experience with the franchise business. 
(b) TERMS OF AGREEMENT.—Any condition, stipula-
tion, provision, or term of any franchise agreement, or any 
agreement ancillary or collateral to a franchise, which 
would purport to waive or restrict any right granted under 
this Act shall be void and unenforceable. No stipulation 
or provision of a franchise agreement, or of an agreement 
ancillary or collateral to a franchise, shall— 
(1) deprive a franchisee of the application and 
benefits of this Act, of any other Federal law, or of 
the law of any State in which the franchisee is a 
resident, or in which the franchisee’s place of busi-
ness is located; 
(2) deprive a franchisee of the right to com-
mence an action against the franchisor for violation 
of this Act, or for breach of the franchise agreement, 
or of any agreement or stipulation ancillary or col-
lateral to the franchise, in a court in the State of 
the franchisee’s principal place of business; or 
(3) prevent a franchisee from bringing or par-
ticipating in any of the following actions: 
(A) A consolidated action or consolidated 
arbitration. 
(B) A mass action or mass arbitration. 
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(C) A class action under Rule 23 of the 
Federal Rules of Civil Procedure. 
(D) A class arbitration as authorized by 
the American Arbitration Association Supple-
mentary Rules for Class Arbitrations. 
(E) A similar consolidated, mass, or class 
proceeding permissible under State or Federal 
statutory or common law, or under the rules of 
any other arbitration association. 
(c) NO WAIVERS.—Compliance with this Act or with 
an applicable State franchise law is not waived, excused, 
or avoided, and evidence of violation of this Act or of such 
State law shall not be excluded, by virtue of an integration 
clause, any choice-of-law, choice-of-venue or any other pro-
vision of a franchise agreement, or an agreement ancillary 
or collateral to a franchise, the parol evidence rule, or any 
other rule of evidence purporting to exclude consideration 
of matters outside the franchise agreement. 
SEC. 6. TRANSFER OF A FRANCHISE. 
(a) TRANSFER OF INTEREST.—A franchisee may as-
sign an interest in a franchised business or in a franchise 
to a transferee provided the transferee satisfies the rea-
sonable qualifications then generally applied by the 
franchisor in the offer and sale of franchises. For the pur-
pose of this section, a reasonable current qualification for 
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a new franchisee is a qualification based upon a legitimate 
business reason. If the proposed transferee does not meet 
the reasonable current qualifications of the franchisor, the 
franchisor may refuse to permit the transfer, provided 
that the refusal of the franchisor to consent to the transfer 
is not arbitrary or capricious and the franchisor states the 
grounds for its refusal in writing to the franchisee. 
(b) NOTICE.—A franchisee shall give a franchisor not 
less than 60 days written notice of a proposed transfer 
of a transferable interest, and on request shall provide in 
writing the ownership interests of all persons holding or 
claiming an equitable or beneficial interest in the franchise 
subsequent to the transfer or the franchisee, as appro-
priate. 
(c) CONSENT IMPLIED.—A transfer by a franchisee 
is considered to have been approved 60 days after the 
franchisee submits the request for permission to transfer 
the franchise involved unless, within that time the 
franchisor refuses to consent to the transfer as evidenced 
in writing in accordance with subsection (a). 
(d) CONDITIONS.—A franchisor may require as a 
condition of a transfer that— 
(1) the transferee successfully complete a rea-
sonable training program; 
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(2) a reasonable transfer fee be paid to reim-
burse the franchisor for the franchisor’s reasonable 
and actual expenses directly attributable to the 
transfer; 
(3) the transferring franchisee pay or make rea-
sonable provision to pay any amount due the 
franchisor or the franchisor’s affiliate; or 
(4) the financial terms of the transfer at the 
time of the transfer, comply with the franchisor’s 
current financial requirements for franchisees. 
(e) PROHIBITED CONDITIONS.—A franchisor may 
not condition its consent to a transfer described in sub-
section (a) on— 
(1) franchisee’s forgoing existing rights other 
than those contained in the franchise agreement; 
(2) a franchisee’s entering into a release of 
claims broader in scope than a counterpart release 
of claims offered by the franchisor to the franchisee; 
or 
(3) requiring the franchisee or transferee to 
make, or agree to make, capital improvements, rein-
vestments, or purchases in an amount greater than 
the franchisor could have reasonably required under 
the terms of the franchisee’s existing franchise 
agreement. 
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(f) NO ADDITIONAL AGREEMENT REQUIRED AFTER 
TRANSFER.—A franchisee may assign the franchisee’s in-
terest in the franchise for the unexpired term of the fran-
chise agreement, and a franchisor shall not require the 
franchisee or the transferee to enter into a franchise 
agreement that has different material terms or financial 
requirements as a condition of the transfer. 
(g) PUBLIC OFFERINGS.—A franchisor may not with-
hold its consent to a franchisee’s making a public offering 
of its securities without good cause if the franchisee, or 
the owner of the franchisee’s interest in the franchise, re-
tains control over more than 25 percent of the voting 
power as the franchisee. 
(h) OTHER CONSOLIDATION.—A franchisor may not 
withhold its consent to a pooling of interests, to a sale 
or exchange of assets or securities, or to any other busi-
ness consolidation amongst its existing franchisees, pro-
vided the constituents are each in material compliance 
with their respective obligations to the franchisor. 
(i) OCCURRENCES NOT CONSIDERED TRANSFERS.— 
The following occurrences shall not be considered trans-
fers requiring the consent of the franchisor under a fran-
chise agreement, and a franchisor shall not impose any 
fees, payments, or charges in excess of a franchisor’s cost 
to review the relevant matter: 
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