Franchise Operations, Franchise Outlook

Should the U.S. Have National Franchise Laws?

Canada and Australia have recently made updates to their franchise business laws, but in the United States, every state has its own rules.

You might have noticed, for example, that California is back in the headlines with a new version of the “Franchise Bill of Rights” which was vetoed by Governor Brown the first time around. The two largest lobbying organizations in the story, The International Franchise Association (IFA) on the “against” and the Coalition of Franchise Associations (CFA) on the “for” side, were able to come up with a compromise that both could agree to. Neither side is completely satisfied, reports say, but the new version of the bill has made it out of committee.

In another example, Texas has declared that franchisors are not “joint employers” in Texas, no matter what the National Labor Relations Board might say. The exception is when a franchisor has an “abnormal” degree of control over day to day operations like hiring and firing. The National Law Review points out that the word “abnormal” might still have to be defined in court, but the Texas Labor Code has at least provided a little more clarity than the NLRB has.

The Federal Trade Commission has rules that apply to all franchises in every state and in the U.S. territories as well. But each state also has its own laws about franchises. In some states, there is a comprehensive franchise code, and in others there are various laws in various areas, such as labor regulations, trademark rules, and so forth. Some states have laws about the relationship between franchisor and franchisee, and others have different laws for different kinds of franchises. In fact, the legal definition of a franchise can be different in different states.

Does it matter? Certainly it does for people who own franchise businesses in more than one state. But the varying state franchise laws also mean that there can be a great deal of uncertainty when a court case arises or when federal agencies like the NLRB or the FTC make decisions. Will the decision apply in every state? Will it be applied differently because of the differences in the nuances of the franchise laws in each jurisdiction?

We might also wonder whether the differing rules are fair or even clear. When you talk with current franchisees in your research on a franchise you’re thinking of investing in, you might not know how their state laws affect their experience. Yours could theoretically be quite different because their states has different regulations from the state where you live.

Still, states have lots of rights, and they may not be willing to give up their differences without a very strong reason to take a unified stand. Interactions among the various state laws might also make it hard to come up with complete and consistent franchise laws without conflicts. As long as the franchising system is working well in the U.S., there may not be strong enough motivation to change it.

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