Legislation is being considered in Maine by the Maine Senate’s Committee on Labor, Commerce, Research and Economic Development as LD 1458 – “An Act to Enact the Maine Small Business Investment Protection Act”. The Act’s goal is to promote “fair franchising” – generally by giving franchisee’s rights outside the terms of the franchise agreements, effectively overwriting those agreements. Some of the provisions are similar to those already enacted by other states, like New Jersey, which includes protections for franchisees against an unfair termination or refusal by the franchisor to renew the franchise, but the Maine Act goes far beyond that.
For example, the Maine Act provides that the franchisor must “deal fairly and in good faith” and “exercise due care” with a franchisee or any franchisee association in “all matters, including, without limitation, transfer of the franchise, administration of advertising funds, rewards programs and marketing funds and the interpretation, administration and performance of franchise and area development or territory agreements” (1299-D. 6.D.)
Another provision requires that a franchisor may not “Sell, rent or offer to sell to a franchisee any product or service for more than a fair and reasonable price or without the reasonable expectation that the sale or rental of the same will promote the profitability of the franchisee’s business” (1299 – D.6.E.)
The Act adds an obligation for the franchisor to exercise a “fiduciary duty” in performing certain services on behalf of the franchisee and in its administration and control of any advertising, marketing or promotional fund to which the franchisee’s contribute (1299-E.1.).
And finally, in addition to many other provisions, it limits the ability of the franchisor to enforce a post-term non-compete. The Maine Act would allow the franchisor to prohibit the a franchisee who has left the franchise system from using the franchisor’s intellectual property and to require the franchisee to de-identify the premises, but, if it is a cookie business, it seems to me that the franchisee could continue to sell cookies – though arguably they would have to tweak the recipe a bit.
As I said, these are only a few examples of provisions in the Maine Act. I feel that many of the provisions including those cited above will encourage complex litigation as the interpretation of “fair dealing”, “due care”, “fair and reasonable prices” and/or “fiduciary duty” to name a few are too ambiguous. In addition, I think that weakening the ability of a franchisor to enforce a non-compete could do substantial damage to other franchisees in the system.
Of course, we all want franchisors and franchisees to deal fairly with each other, but this act, in my opinion, goes too far.