(1) promote the compelling interest of the pub-
lic in fair business relations between franchisees and 
franchisors; 
(2) protect franchisees against unfair treatment 
by franchisors, who inherently have superior eco-
nomic power and superior bargaining power in the 
negotiation of the terms and conditions of the fran-
chise relationship; 
(3) provide franchisees with rights and remedies 
in addition to those existing by contract or common 
law; 
(4) govern franchise agreements, including any 
renewals or amendments, to the full extent con-
sistent with the Constitution of the United States; 
and 
(5) create an environment that gives franchisees 
opportunity to thrive, therefore having the oppor-
tunity to provide better wages and benefits to their 
employees. 
SEC. 3. UNFAIR FRANCHISE PRACTICES. 
(a) MISREPRESENTATIONS
IN REQUIRED DISCLO-
SURE.—In connection with any disclosure document, no-
tice, 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— 
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(1) to— 
(A) make an untrue statement of material 
fact; 
(B) fail to state a material fact; or 
(C) fail to state any fact which would 
render any required statement or disclosure ei-
ther untrue or misleading; and 
(2) fail to furnish any prospective franchisee 
with— 
(A) all information required to be disclosed 
by law and at the time and in the manner re-
quired; 
(B) a written statement specifying, promi-
nently and in not less than 14-point type, 
whether the franchise agreement involved con-
tains a right to renew such agreement; and 
(C) 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. 
(b) DECEPTIVE AND DISCRIMINATORY PRACTICES.— 
In connection with the performance, enforcement, renewal, 
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or termination of any franchise agreement, it shall be un-
lawful for a franchisor or subfranchisor, either directly or 
indirectly through another person, to do any of the fol-
lowing: 
(1) To engage in an act, practice, course of 
business, or pattern of conduct which operates as a 
fraud upon any person. 
(2) To hinder, prohibit, or penalize (or threaten 
to hinder, prohibit, or penalize), directly or indi-
rectly, the free association of franchisees for any 
lawful purpose, including the formation of or partici-
pation in any trade association made up of 
franchisees or of associations of franchisees. 
(3) To discriminate against a franchisee by im-
posing requirements not imposed on other similarly 
situated franchisees. 
(4) To otherwise retaliate, directly or indirectly, 
against any franchisee for membership or participa-
tion in a franchisee association. 
(5) To charge excessive and unreasonable re-
newal 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. 
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(6) To enforce a clause or provision in a fran-
chise agreement requiring the parties to submit to 
arbitration unless the parties, each being rep-
resented by counsel, have voluntarily entered into an 
agreement after the dispute arises to submit the dis-
pute 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 enforce-
ability of a clause or provision in a franchise agree-
ment which requires the parties to submit to non- 
binding mediation conducted at a location reasonably 
convenient to the franchisee. 
(7) To terminate, cancel, or fail to renew a 
franchise for the failure or refusal of the franchisee 
to do any of the following: 
(A) Refusal to take part in any pro-
motional campaign which is not reasonable, im-
plemented in good faith, and expected to pro-
mote the profitability of the franchisee’s busi-
ness. 
(B) Failure to meet sales quotas suggested 
or required by the franchisor not expressly set 
forth in the franchise agreement. 
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(C) 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. 
(D) Refusal to keep the franchised prem-
ises 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 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. 
(E) Refusal to give the franchisor or any 
supplier financial records of the operation of 
the franchise which are not related or unneces-
sary to the performance of franchisee’s express 
obligations under the franchise agreement or 
records unrelated to the franchise business. 
(8) To restrict a franchisee from associating 
with other franchisees or from joining, leading, or 
otherwise participating in a trade or other associa-
tion, or retaliate against a franchisee for engaging in 
these activities. 
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(9) To require or prohibit any change in man-
agement 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 provi-
sions of the franchise agreement. Good cause shall 
include requiring that management of the franchise 
be conducted by— 
(A) personnel who have been trained in the 
manner required of all franchise managers in 
the system; and 
(B) personnel who are legally eligible for 
employment in the United States of America. 
(10) To impose on a franchisee by contract, 
rule, or regulation, whether written or oral, a stand-
ard 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 li-
censees. The following are examples of unreasonable 
conduct: 
(A) To fail to deal fairly and in good faith 
or fail to exercise due care with a franchisee or 
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any association or other aggregation or incorpo-
ration of franchisees in all business matters, in-
cluding— 
(i) proposed and actual transfer of the 
franchise; 
(ii) 
administration 
of 
advertising 
funds, rewards programs, and marketing 
funds; and 
(iii) the interpretation, administration, 
and performance of franchise agreements 
and area development or territory agree-
ments. 
(B) 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 rea-
sonable price or without the reasonable expecta-
tion that the sale or rental transaction itself 
will be profitable for the franchisee’s business. 
(C) To discriminate between franchisees in 
the charges offered or made for royalties, 
goods, services, equipment, rentals, advertising 
services, or in any other business dealing, un-
less that discrimination between franchisees— 
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(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 posttermination 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; or 
(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) OCCURENCES 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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(1) The succession of ownership or management 
of a franchise upon the death or disability of a 
franchisee, or of an owner of a franchise, to the sur-
viving spouse, heir, or partner active in the manage-
ment of the franchise unless the successor objec-
tively fails to meet within 1 year the then current 
reasonable qualifications of the franchisor for 
franchisees. 
(2) Incorporation of a proprietorship franchisee, 
provided that the franchisor may require a personal 
guarantee by the franchisee of obligations related to 
the franchise. 
(3) A transfer within an existing ownership 
group of a franchise provided that more than 50 
percent of the franchise is held by persons who meet 
the franchisor’s reasonable current qualifications for 
franchisees. If less than 50 percent of the franchise 
would be owned by persons who objectively meet the 
franchisor’s reasonable current qualifications, the 
franchisor may refuse to authorize the transfer. 
(4) A transfer of less than a controlling interest 
in the franchise to the franchisee’s spouse or child 
or children, provided that more than 50 percent of 
the entire franchise is held by those who meet the 
franchisor’s reasonable current qualifications. If less 
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than 50 percent of the franchise would be owned by 
persons who objectively meet the franchisor’s reason-
able current qualifications, the franchisor may refuse 
to authorize the transfer. 
(5) A grant or retention of a security interest 
in the franchised business or its assets, or an owner-
ship interest in the franchisee, if the security agree-
ment establishes an obligation on the part of the se-
cured party enforceable by the franchisor to give the 
franchisor, simultaneously with notice to the 
franchisee, notice of the secured party’s intent to 
foreclose on the collateral, and a reasonable oppor-
tunity to redeem the interest of the secured party 
and recover the secured party’s interest in the fran-
chise or franchised business by satisfying the se-
cured obligation. 
(6) A franchisor may not exercise any pur-
ported right of first refusal or right to purchase with 
regard to any franchise, or interest or assets of a 
franchisee, upon the happening of any event de-
scribed in paragraphs (1) through (5). 
(j) CERTAIN COVENANTS UNENFORCEABLE.—After 
the transfer of a transferor’s complete interest in a fran-
chise, a franchisor may not enforce against the transferor 
any covenant of the franchise agreement purporting to 
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prohibit the transferor from engaging in any lawful occu-
pation or enterprise. This subsection shall not limit the 
franchisor from enforcing a contractual covenant against 
the transferor not to exploit the franchisor’s trade secrets 
or intellectual property rights (including protection of 
trade dress) except by agreement with the franchisor. 
SEC. 7. RENEWAL OF THE FRANCHISE; NOTICE. 
(a) IN GENERAL.—A franchisor shall not, directly or 
through an officer, agent, or employee, fail to renew a 
franchise, except for good cause shown. 
(b) FEES.—Renewals shall not be subject to unrea-
sonable fees. Fees shall not be deemed unreasonable if 
they do not exceed 50 percent of the amount of the aver-
age initial franchise fee or other required payments then 
being charged to all franchisees. 
(c) GOOD CAUSE FOR NONRENEWAL.—Good cause 
as described in subsection (a) shall be based upon legiti-
mate business reason which shall include, the franchisee’s 
refusal or failure to substantially comply with any mate-
rial, reasonable and reasonably necessary express obliga-
tion of the franchise agreement within the one year period 
prior to renewal, including repeated and intentional non-
payment of royalties, advertising or marketing fees clearly 
required by the franchise agreement. 
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(d) NOTICE OF NONRENEWAL.—Before nonrenewal 
of the franchise, the franchisor shall give the franchisee 
written notice at least 90 days in advance of the non-
renewal. The notice shall state all of the reasons consti-
tuting good cause for the nonrenewal and shall provide 
that the franchisee has 60 days in which to rectify any 
claimed discrepancy and reinstate its right to renew the 
franchise. 
(e) PRESERVATION OF FEES.—If the franchisor re-
quires the franchisee to sign a new franchise agreement 
as a condition of renewal, such franchise agreement shall 
contain the same royalties, advertising fees, and other fees 
as the expiring agreement, no new fees and any protected 
territory in the expiring agreement shall be the same in 
the renewal franchise. 
(f) PROHIBITED ACTIONS.—A franchisor shall not 
prohibit, or enforce a prohibition against, any franchisee 
from— 
(1) engaging in any business at any location 
after expiration of a franchise agreement; or 
(2) using the customer list and telephone num-
bers associated with the franchise business. 
(g) RULE OF CONSTRUCTION.—Nothing in this sub-
section shall be interpreted to prohibit enforcement of any 
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provision of a franchise contract obligating a franchisee 
after expiration or termination of a franchise— 
(1) to cease or refrain from using a trademark, 
other trade secret, or other intellectual property 
owned by the franchisor or its affiliate; 
(2) to alter the appearance of the business 
premises so that it is not substantially similar to the 
standard design, decor criteria, trade dress or motif 
in use by other franchisees using the same name or 
trademarks within the proximate trade or market 
area of the business; or 
(3) to modify the manner or mode of business 
operations so as to avoid any substantial confusion 
with the manner or mode of operations which are 
unique to the franchisor and commonly in practice 
by other franchisees using the same name or trade-
marks within the proximate trade or market area of 
the business. 
SEC. 8. TERMINATION; GOOD CAUSE; NOTICE; OPPOR-
TUNITY TO CURE. 
(a) IN GENERAL.—A franchisor shall not, directly or 
through an officer, agent, or employee, terminate or cancel 
a franchise, or substantially change the competitive cir-
cumstances of the franchisee, except for good cause 
shown. 
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(b) DEFAULT PROVISIONS.—A default under one 
franchise agreement shall not in and of itself constitute 
a default under another franchise agreement to which the 
franchisee or an affiliate of the franchisee is a party. Any 
cross-default provisions are null and void. 
(c) NOTICE.—Prior to termination or cancellation of 
the franchise, the franchisor shall give the franchisee writ-
ten notice at least 90 days in advance of the termination. 
The notice shall state all of the reasons constituting good 
cause for termination or cancellation and shall provide 
that the franchisee has 60 days in which to rectify any 
claimed defaults. 
(d) EXCEPTION TO NOTICE REQUIREMENT.—The re-
quirement for 90 days advance written notice for termi-
nation shall not apply if the reason for termination is be-
cause— 
(1) the alleged grounds are voluntary abandon-
ment by the franchisee of the franchise relationship, 
in which event, such notice may be given 15 days in 
advance of the termination or cancellation; or 
(2) the conviction of the franchisee in a court 
of competent jurisdiction of an offense, where the 
conviction is no longer appealable and the offense 
is— 
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(A) punishable by a term of imprisonment 
in excess of 1 year; 
(B) directly related to the business conduct 
pursuant to the franchise; or 
(C) materially impairs the goodwill value of 
the franchise or the franchised trademark. In 
that event, such notice may be given at any 
time following the date on which the conviction 
is no longer appealable and shall be effective 
upon delivery and written receipt of the notice. 
In no event shall any franchisor collect any fi-
nancial penalty or fee, however delineated, as a 
consequence of such conviction. 
(e) ADDITIONAL NOTICE.—If the reason for termi-
nation or cancellation is nonpayment of sums due under 
the franchise agreement, the franchisee shall be entitled 
to written notice of such default, and shall have 15 days 
in which to cure such default from the date of such notice. 
For such non-payment defaults a franchisee has the right 
to cure 3 times in any 12 month period during the period 
of the franchise agreement. 
(f) NOTICE OF IMMINENT DANGER.—If the reason 
for termination or cancellation is violation of any law or 
regulation relating to an imminent danger to public health 
or safety the franchisee shall be entitled to immediate 
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written notice and shall have 24 hours following receipt 
of such notice to cure such violation. 
(g) GOOD CAUSE.—A franchisee may terminate a 
franchise agreement for good cause shown, without any 
further liability to the franchisor. Good cause shall include 
changes to the franchise system or the competitive cir-
cumstances of the franchise business, which would cause 
substantial negative impact or substantial financial hard-
ship to the franchisee in the operation of its franchise. 
SEC. 9. EFFECT OF TERMINATION. 
(a) IN GENERAL.—Upon termination of a franchise 
for whatever cause or reason, except voluntary relinquish-
ment or abandonment of the franchise by the franchisee 
or the expiration of the franchise agreement where the 
franchisee does not elect to renew, the franchisor shall 
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, equip-
ment, and furnishings purchased by the franchisee from 
the franchisor or its approved sources and the fair market 
value of the going concern value and good will of the busi-
ness, if any, exclusive of personalized items which have 
no value to the franchisor and inventory, supplies, equip-
ment, and furnishings not reasonably required in the con-
duct of the franchise business; provided, however, that— 
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(1) compensation need not be made to 
franchisee of going concern value and good will if 
the franchisor agrees in writing not to enforce a cov-
enant which restrains the franchisee from competing 
with the franchisor in the same or substantially 
similar business in the same or substantially similar 
manner at the same location using the same prop-
erty except the franchisor’s registered trademark or 
trade name; and 
(2) a franchisor may offset against amounts 
owed to a franchisee under this subsection any 
amount mutual agreed upon and owed by the 
franchisee to franchisor which is not the subject of 
a good faith dispute by the franchisee. 
(b) RULE OF CONSTRUCTION.—The provisions of this 
section shall not be construed to permit the termination 
or nonrenewal of any franchise agreement except in ac-
cordance with the express terms of the franchise agree-
ment and this Act. 
SEC. 10. TRANSFER OF FRANCHISE BY FRANCHISOR. 
A franchisor shall not transfer, by sale or otherwise, 
its interest in a franchise system unless— 
(1) the franchisor provides, not less than 30 
days before the effective date of transfer, notice to 
every franchisee of the intent to transfer the 
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franchisor’s interest in the franchise or of substan-
tially all of the franchises held by the franchisor; 
(2) such notice is accompanied by a complete 
description of the business and financial terms of 
the proposed transfer or transfers; and 
(3) upon the transfer, the entity assuming the 
franchisor’s obligations has the business experience 
and financial means to adequately perform all of the 
franchisor’s obligations in the ordinary course of 
business. 
SEC. 11. PRIVATE RIGHT OF ACTION. 
(a) IN GENERAL.—A franchisee who is injured by a 
violation or threatened violation of this Act, or of section 
436.1 of title 16, Code of Federal Regulations (relating 
to disclosure requirements and prohibitions concerning 
franchising and business opportunity ventures) as in effect 
on the date of the enactment of this Act, may bring a 
private right of action in any court of appropriate jurisdic-
tion for rescission and restitution, as well as for all dam-
ages and maybe awarded injunctive relief against a viola-
tion or threatened violation of this Act or such section. 
The franchisee shall also be entitled to recover its costs 
of litigation and reasonable attorney’s fees and expert wit-
ness fees, against any entity or person found to be liable 
for such violation. 
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(b) LIABILITY.—Every person who directly or indi-
rectly controls a person liable under subsection (a), every 
partner in a firm so liable, every principal executive officer 
or director of a corporation so liable, every person occu-
pying a similar status or performing similar functions and 
every employee of a person so liable who materially aids 
in the act or transaction constituting the violation is also 
liable jointly and severally with and to the same extent 
as such person, unless the person who would otherwise be 
liable hereunder had no knowledge of or reasonable 
grounds to know of the existence of the facts by reason 
of which the liability is alleged to exist. 
(c) STATUTE OF LIMITATIONS.—No action may be 
commenced pursuant to this section or this Act more than 
the later of— 
(1) 5 years after the date on which the violation 
occurs; or 
(2) 3 years after the date on which the violation 
is discovered or should have been discovered through 
exercise of reasonable diligence. 
(d) VENUE.—A franchisee may commence a civil ac-
tion to enforce any provision of this Act within the juris-
diction wherein the applicable franchisee is a resident or 
where the applicable business is located. 
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(e) CUMULATIVE RIGHT.—The private rights pro-
vided for in this section are in addition to and not in lieu 
of other rights or remedies created by Federal or State 
law. 
SEC. 12. SCOPE AND APPLICABILITY. 
(a) PROSPECTIVE APPLICATION.—Except as pro-
vided in subsection (b), the requirements of this Act shall 
apply to franchise agreements entered into, amended, ex-
changed, transferred, assigned, or renewed after the date 
of enactment of this Act. 
(b) DELAYED EFFECT.—The requirements of section 
3 of this Act shall take effect 90 days after the date of 
enactment of this Act and shall apply only to actions, 
practices, disclosures, and statements occurring on or 
after such date. 
SEC. 13. DEFINITIONS. 
For purposes of this Act, the following definitions 
apply: 
(1) The term ‘‘affiliate’’ has the meaning given 
the term ‘‘affiliated person’’ in section 436.1(b) of 
title 16 of the Code of Federal Regulations as in ef-
fect on July 1, 2007. 
(2) The term ‘‘disclosure document’’ means ei-
ther the disclosure statement required by the Fed-
eral Trade Commission in Trade Regulation Rule 
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436 (16 C.F.R. Sec. 436) as amended from time to 
time, or any offering format allowed or required by 
State or local law. 
(3) The term ‘‘franchise’’ has the meaning 
given such term in section 436.1(h) of title 16 of the 
Code of Federal Regulations as in effect on July 1, 
2007, but does not include any contract otherwise 
regulated by the Federal Petroleum Marketing Prac-
tices Act (15 U.S.C. 2801 et seq.) except as to fran-
chise relationships that do not involve the sale of pe-
troleum products. 
(4) The term ‘‘franchise seller’’ has the mean-
ing given such term in section 436.1(j) of title 16 
of the Code of Federal Regulations as in effect on 
July 1, 2007. 
(5) The term ‘‘franchisee’’ has the meaning 
given such term in section 436.1(i) of title 16 of the 
Code of Federal Regulations as in effect on July 1, 
2007. 
(6) The term ‘‘franchisor’’ has the meaning 
given such term in section 436.1(k) of title 16 of the 
Code of Federal Regulations as in effect on July 1, 
2007. 
(7) The terms ‘‘material’’ and ‘‘material fact’’ 
include— 
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(A) any fact, circumstance, or set of condi-
tions which a reasonable franchisee or a reason-
able prospective franchisee would consider im-
portant in making a significant decision relat-
ing to entering into, remaining in, or aban-
doning a franchise relationship; and 
(B) any fact, circumstance, or set of condi-
tions which has, or may have, any significant fi-
nancial impact on a franchisor, franchisee, or a 
prospective franchisee. 
(8) The term ‘‘offer’’ or ‘‘offering’’ means any 
effort to offer or to dispose of, or solicitation of an 
offer to buy, a franchise or interest in a franchise 
for value. 
(9) The term ‘‘outlet’’ means a point of sale, 
temporary or permanent, fixed or mobile, from 
which goods or services are offered for sale. 
(10) The term ‘‘person’’ means either an indi-
vidual or any other legal or commercial entity. 
(11) The term ‘‘State’’ means a State, the Dis-
trict of Columbia, and any territory or possession of 
the United States. 
(12) The term ‘‘subfranchise’’ means a contract 
or an agreement by which a person pays a 
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franchisor for the right to sell, negotiate the sale, or 
provide service franchises. 
(13) The term ‘‘subfranchisor’’ means a person 
who is granted a subfranchise. 
(14) The term ‘‘trade secret’’ means informa-
tion, including a formula, pattern, compilation, pro-
gram, device, method, technique, or process, that— 
(A) derives independent economic value, 
actual or potential, from not being generally 
known to, and not being readily ascertainable 
by proper means by, other persons who can ob-
tain economic value from its disclosure or use; 
and 
(B) is the subject of efforts that are rea-
sonable under the circumstances to maintain its 
secrecy. 
(15) The terms ‘‘nonrenewal’’ and ‘‘nonrenew’’ 
mean that the franchisor fails or refuses to extend 
the franchisor-franchisee relationship at the end of 
the existing term of the franchise agreement, irre-
spective of whether the franchise agreement contains 
any contractual right to obtain a renewal term. Al-
lowing a franchise agreement with no renewal term 
to expire shall be considered to be a ‘‘nonrenewal’’ 
for purposes of this Act. 
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SEC. 14. SEVERABILITY. 
If any provision or clause of this section or any appli-
cation of this section to any person or circumstances is 
held invalid, such invalidity shall not affect other provi-
sions or applications of the section which can be given ef-
fect without the invalid provision or application, and to 
this end the provisions of this section are declared to be 
severable. 
SEC. 15. STATE ATTORNEYS GENERAL. 
(a) CIVIL ACTION.—Whenever an attorney general 
(or similar enforcement officer of a State, however de-
nominated, hereinafter ‘‘attorney general’’) of any State 
has reason to believe that the interests of the residents 
of that State have been or are being threatened or ad-
versely affected because any person has engaged or is en-
gaging in a pattern or practice which violates any provi-
sion of this Act, the State, as parens patriae, may bring 
a civil action on behalf of its residents in an appropriate 
State court or district court of the United States to enjoin 
such violations, to obtain damages, restitution or other 
compensation on behalf of residents of such State or to 
obtain such further and other relief as the court may deem 
appropriate. 
(b) PRESERVATION
OF POWER.—For purposes of 
bringing any civil action under subsection (a), nothing in 
this Act shall prevent an attorney general from exercising 
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the powers conferred on the attorney general by the laws 
of such State to conduct investigations or to administer 
oaths or affirmations or to compel the attendance of wit-
nesses or the production of documentary and other evi-
dence. 
(c) VENUE.—Any civil action brought under sub-
section (a) in a district court of the United States may 
be brought in the district in which the defendant is found, 
is an inhabitant, or transacts business, or wherever venue 
is proper under section 1391 of title 28, United States 
Code. Process in such action may be served in any district 
in which the defendant is an inhabitant or in which the 
defendant may be found. 
(d) NO PREEMPTION.—Nothing contained in this 
section shall prohibit an authorized State official from pro-
ceeding in State court on the basis of an alleged violation 
of any civil or criminal statute of such State. 
Æ 
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