This month a new bill was introduced in the New Hampshire House of Representatives aimed at promoting “fair business relations between franchisees and franchisors.” According to its sponsors, HR 1215 or the “Small Business Investment Protection Act” (Act) sponsored by House Representative Patrick Abrami (Stratham District) is intended to “level the playing field” for franchisees. Among other things the Act would:
- Permit franchisees to set their own hours;
- Prohibit the termination, cancellation, or non-renewal of a franchisee for a list of reasons including the franchisees refusal to “take part in promotional campaigns for the products or services of the franchise which are not reasonable and in good faith expected to promote the profitability of the franchisee’s business;”
- Prohibit a franchisor from requiring a franchisee to sell any product or service for a price at a loss or “otherwise not reasonably acceptable to the franchisee;” and
- Prohibit franchisors from terminating, cancelling, or substantially changing the competitive circumstances of a franchise agreement except for good cause shown.
Franchise protection laws are usually proposed by good intentioned lawmakers. Many of these provisions, however, fly in the face of a franchise system’s effort to create brand awareness through uniformity. What happens when a franchisee in New Hampshire doesn’t have to offer a product line offered at every other franchise location because the franchisee decides the price is ”not reasonably acceptable”? Can a franchise restaurant in New Hampshire really choose to shut down in late afternoon if the franchisee decides it is not profitable to be open? What does this do to the brand?
HR 1215 if enacted would have broad reaching effects on a large segment of New Hampshire’s businesses. The New Hampshire Business Review reports that, according to the International Franchise Association (IFA), there are some 3,700 franchise businesses employing 39,000 people in the state.
The bill is quite lengthy and includes guidelines on franchise sales practices and a section explicitly imposing a fiduciary duty on franchisors. We encourage all franchisors with locations in New Hampshire to read the full text of the bill here. HR 1215 is currently in committee so we will keep an eye on its progress and report updates as released.