Franchising World, October 2013

BY DEAN HEYL  

Pennsylvania Rep. Peter Daley introduced a very problematic franchising relationship bill, HB 1620, on July 28. The bill includes among other things:  
   • Very broad definition of good faith (franchisor cannot prevent “enjoyment” by franchisee);
   • Vague and unintelligible definition of fair dealing;
   • Duty of due care, which means a duty to be as competent as similar franchisors;
   • Sourcing freedom for the franchisee, including a provision mandating a report by the franchisor of its revenues and profits from sourcing;
   • Encroachment protection if there is any reduction in sales at an existing location;
   • Evergreen franchise renewal;
   • The franchisor cannot sell without prior notice to franchisees and buyer must renegotiate with franchisees; and
   • The bill provides for damages, attorneys’ fees, civil penalties and criminal penalties.  
   As we have seen in legislation introduced in other states such as Maine and California, ultimately it is the franchisees who play by the agreed upon rules in franchise agreements that will be particularly harmed as this legislation would allow underperforming franchisees to damage the integrity of a franchise’s brand and undermine the equity strong franchisees have invested.
   While the franchise relationship bill in Maine, LD 1458, was viewed by many as one of the worst, it pales in comparison in the depth and breadth of Pennsylvania HB 1620.
   The International Franchise Association has formed a broad coalition of business interests, including state-based associations such as the Pennsylvania Retail Association, to oppose the bill and educate lawmakers about the negative consequences of this legislation moving forward.

Dean Heyl is senior director, state government relations, public policy & tax counsel, for the International Franchise Association. Find him at  fransocial.franchise.org   via the directory.