FRANCHISORS BEWARE: PENDING MAINE LEGISLATION WILL MAKE FRANCHISE LIFE MORE DIFFICULT

Whether headquartered in Michigan or elsewhere, a difficult aspect of franchising, for the franchisor, is the need to understand and comply with the laws of each state or country in which franchises are to be marketed, sold or located. Some states have franchise laws, others do not. Of those that do, the laws vary from state to state. This typically results in having to develop a franchise agreement with a separate addendum for each state to address any peculiarities of the state’s franchise law.  A recent proposal in Maine illustrates the problem.

A bill pending in the Maine legislature seeks to provide enhanced protection for franchisees. The bill would, among other things:

• Make a franchisor liable for damages to a franchisee for developing a new outlet or location that has a material adverse impact on the franchisee;
• Prohibit the termination or refusal to renew a franchise except for good cause;
• Require a minimum of 90 days’ notice and 60 days to cure a default by the franchisee prior to termination or refusal to renew a franchise;
• Prohibit any increase in royalties, advertising fees or other fees upon renewal of a franchise;
• Prohibit a post-termination covenant not to compete;
• Restrict the ability of a franchisor to sell a franchise system; and
• Limit the amount of post-termination damages recoverable from a franchisee.

The wisdom of many of these protections is debatable, and that debate is currently ongoing in Maine’s legislature. What is not subject to debate is the fact that many of these provisions go far beyond what is required in other states, and would require franchisors to implement unique operational processes for their Maine operations.  It is possible that if this legislation is enacted some franchise systems may choose not to locate there, as the benefits of a relatively small market may be far outweighed by the costs of compliance.

Franchise matters require careful and well informed legal counsel. For assistance with franchise or distribution issues, please contact Bruce W. Haffey at (248) 457-7000 or bhaffey@gmhlaw.com.