Monthly Archives: June 2013

New Delaware law welcomed by franchisors

Delaware has passed into law HB 55 clarifying that franchisees are independent contractors and not employees of the franchisor. The Bill, which passed through Delaware’s House and Senate unanimously was signed into law by the Governor earlier this month. The new law will be welcomed by franchise systems that remain troubled over this issue because of the Massachusetts Awuah litigation and similar cases that have sprung up in other jurisdictions. Georgia passed similar legislations last year. We will continue to follow other developments as many states conclude their legislative sessions.

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New Delaware law welcomed by franchisors

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Maine follows California’s lead on franchise legislation.

One Franchise Association executive characterized pending legislation known as “An Act to Enact the Maine Small Business Investment protection Act” as “the worst legislation we have seen in years.” It certainly appears that Maine’s legislature has been inspired by their west coast counterparts as the Maine Act expands upon many of the themes of California’s existing Franchise Relations Act and its’ pending Senate Bill 610. The Maine Act mirrors the California Bill by requiring that franchisors must “deal fairly” and “in good faith” with franchisees. Additionally, the Act would require franchisors to: provide franchisees additional time to cure defaults; renew franchise agreements without increasing royalty rates or imposing new fees; and compensate damaged franchisees for placing outlets within their territories. The Act would also limit the ability of a franchisor to enforce post-term covenants against competition and imposes a fiduciary duty upon franchisors when performing certain services for the franchisee, including the administration of the franchisor’s advertising fund.

While the lobbyists for franchisor and franchisee trade associations stake out their respective positions, it appears to me that, as in California, the real winners in the event this bill is passed will be the plaintiff lawyers who will use the ambiguous terms contained in the legislation to create causes of action that fall far outside of the four corners of the franchise agreement. The broadly defined terms that are the heart of the legislation (“deal fairly”, “good faith”) will be litigated in the court houses of Maine for years. If passed, the Maine Act will damage the integrity of franchise systems operating in Maine to the detriment not only of the franchisors, but the franchisees in those systems as well.

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