USA Trends and Developments Contributed by: Carmen D. Caruso, Carmen D. Caruso Law Firm
resentation made in the disclosure document or its exhibits or amendments. (See 16 CFR Section 436.9.) In the 13 “registration states” that require franchisors to obtain state approval to sell franchises, state exam - iners scrutinise Items 5, 6, 7 and especially 19 for align - ment with current unit-level realities and for adequate explanation of variances. These steps signal greater regulatory awareness of franchisees’ economic chal - lenges, yet they fall short of the broader protections many franchisee advocates seek. Legislative propos - als such as the Franchisee Freedom Act (seeking a private right of action for Franchise Rule violations) remain under discussion with uncertain prospects. At the state level, 18 states have enacted franchise relationship statutes that vary in content: Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Mis - souri, Nebraska, New Jersey, Rhode Island, Virginia, Washington and Wisconsin. Puerto Rico and the US Virgin Islands provide similar protections. These stat - utes may impose “good cause” or similar standards for termination and non-renewal, require notice and cure periods, and regulate transfers. Other states impose comparable industry-specific protections, most commonly for motor-vehicle or farm-equipment dealerships. The Petroleum Marketing Practices Act (PMPA) and the Automobile Dealers Day in Court Act (ADDCA) are the only industry-specific franchis - ing statutes at the federal level, but it is debatable whether the PMPA protects gasoline dealers – its pro - fessed intent – or protects oil companies by providing a roadmap for successful dealer terminations while pre-empting state laws that might offer stronger pro - tections to dealers. Likewise, lawyers for car dealers view the ADDCA as toothless and often pursue state law remedies, as the ADDCA does not pre-empt. The uneven (and sometimes ineffective) statutory landscape has practical consequences. National franchisors must navigate different substantive rules. Some franchisees enjoy more statutory protection than others, but no franchisees enjoy the protection their advocates continue to lobby for in Congress and in state legislatures across the country. Choice-of-law and venue clauses in franchise agreements take on added importance. The absence of a private right
of action to enforce the FTC Franchise Rule and the absence of a uniform federal relationship standard continue to generate uncertainty, forum-shopping incentives, and calls – from both franchisor and fran - chisee advocates – for greater predictability, even as the two sides disagree on what that predictability should look like. Good Faith and Fair Dealing: a Check on Franchisor Discretion Because most franchise agreements deliberately con - fer broad discretionary authority on the franchisor (site approval, transfers, renewal, system standards, sup - ply arrangements and more), the implied covenant of good faith and fair dealing remains a primary check. Courts vary in their willingness to give the covenant real force. The covenant requires that franchisors exer - cise their discretion honestly, for proper motives, and consistently with the justified expectations of the par - ties – expectations often informed by course of deal - ing, prior representations and industry norms. Parol evidence is frequently admissible for this purpose. Unconscionability challenges to extreme reservation- of-rights or liquidated-damages clauses occasionally succeed when substantive unfairness is paired with procedural oppression. Proactive franchisor practices – transparent decision- making, documented rationales for material changes, meaningful cure periods, and genuine engagement with franchisee associations or advisory groups – reduce the incidence of successful good-faith claims. The reverse is also true: opaque or pretextual exer - cises of discretion continue to generate litigation and arbitration. The Joint-Employer Threat An issue that unites franchisors and franchisees is their opposition to attempts to make franchisors the joint employer of workers employed by their franchisees. At stake is whether labour unions will be able to demand collective bargaining across an entire brand (or state by state) and, not surprisingly, the National Labor Relations Board (NLRB) has shifted its posi - tion as presidential administrations have changed. In 2026, the NLRB under the Trump administration rein - stated its earlier rule (from 2020), replacing the 2023
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