USA Law and Practice Contributed by: David B. Ramsey and Michelle Murray-Bertrand, Kaufmann Gildin & Robbins LLP
implementing appropriate training and oversight for franchise sales personnel and brokers, and, where required, ensuring that they are properly registered or licensed. Finally, franchisors must satisfy all applicable state franchise registration, exemption and filing require - ments before offering or selling franchises in those states. Collectively, these requirements form the reg - ulatory framework governing a franchisor’s ability to lawfully establish and operate a franchise programme. There are no requirements that the franchisor dem - onstrate that the business has operated profitably for a period of time in a number of locations before the franchisor can begin offering and selling franchises. 5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement There is no minimum or maximum duration applicable to a franchise agreement as a result of legal/regulatory requirements. 5.2 Franchise Renewal While nothing under federal franchise law – principally the FTC Franchise Rule, as amended – gives a fran - chisee a statutory renewal right, certain states have enacted “franchise relationship laws” that restrict when a franchisor may refuse to renew a franchise agreement. These restrictions (in the relatively few states where they apply) vary from jurisdiction to juris - diction and depend on the underlying facts (whether the franchisor has good cause to refuse to renew), the language of the state’s relationship law and how it has been interpreted by the courts over time (which is sub - ject to change as each state’s common law evolves over time). Under the franchise relationship laws of the following states, a franchisor generally must have “good cause” and/or similar legally sufficient reason to refuse to renew a franchise agreement: Arkansas, Connecticut, Delaware, Hawaii, Indiana, Iowa (unless the franchisor is withdrawing from the market area), Michigan, Min - nesota, Nebraska, New Jersey, Puerto Rico, Rhode Island, the US Virgin Islands and Wisconsin.
In certain states with relationship laws, compensation by the franchisor to the franchisee is payable upon non-renewal by the franchisor without good cause – such as California, where the compensation is the fair market value of the franchised business and assets, plus any damages caused by the violation. However, in California, if the franchisor lawfully refuses to renew, and retains control of the franchise premises, the fran - chisor must repurchase all the franchisee’s inventory, supplies, equipment, fixtures and furnishings at the franchisee’s original cost minus depreciation. This repurchase obligation does not apply in certain situ - ations. Note that in some states, such as California, the fran - chise relationship statutory provisions are intricate and the requirements can be complex and nuanced depending on the situation; details of all situations are not treated in this summary. Other states where compensation is payable upon non-renewal by the franchisor include Connecticut (the franchisor must pay fair and reasonable compensation for inventory, supplies, equipment and furnishings bought from the franchisor or franchisor-approved sources), Hawaii, Illinois (under certain circumstances), Iowa (in rare cases, and if the franchisor wishes to be able to enforce a post-term non-compete covenant in the franchise agreement), Michigan (but in very limited circumstances), Puerto Rico (if without just cause), Rhode Island (if franchisee so elects), and Washington State (where they must compensate for fair market value and goodwill, unless the franchisor gives one year advance notice of non-renewal and the franchisor agrees in writing not to enforce any covenant against competition). Commercial agency laws do not affect franchise rela - tionships and agreements in the USA in the way that they do in many other countries, in terms of compen - sation for goodwill. 5.3 Termination of the Franchise Agreement Similar to non-renewal, certain states have franchise relationship laws that restrict when a franchisor may terminate a franchise agreement. These restrictions apply regardless of what is stated in the franchise agreement. Typically, these restrictions require “good cause” (and/or similar concepts/reasons) for a fran -
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