Franchise Lawyer Blog

Leveling the Playing Field

The State Legislature of Ohio recently amended the Ohio Business Opportunity Law. The new version aims to increase the protections for Ohio franchisees from abusive franchising practices, including those relating to franchise disclosures by franchisors.

The Ohio Business Opportunity Law was passed in an effort to “protect prospective purchasers of business opportunity plans by requiring that sellers provide the purchasers with the information necessary to make an intelligent decision about the business opportunity plan being offered…”

According to the general assembly, “the offer and sale of business opportunity plans is a matter affected with a public interest.”

Under the law, franchisees are given the right to sue franchisors for violation of franchise disclosure laws without proof of fraud. This includes errors (except non-typographical errors) within Franchise Disclosure Documents.

The amended language of the law is intended by Ohio to essentially level the playing field and help franchisees defend their rights against violations of franchise laws by franchisors who are presumably larger corporate entities with access to more money and more resources.

One amendment to the law relates to choice of law. Presently, provisions in the Ohio Business Opportunity Law stipulate that purchasers of franchises within the state who have been wronged can seek remedies that include rescission, triple damages and attorney fees.

Previously, however, franchisors located outside of the state of Ohio facing lawsuits by franchisees in Ohio could avoid these penalties under Ohio law by indicating contractually that a different state’s law applies to the case.The amended language of the law now stipulates that franchisors won’t be allowed to “forum shop” and that Ohio law will apply when there is a sale of a franchise both within the state and outside of the state.

Essentially, even if a franchise agreement stipulates that a franchisor’s out of state laws supersede Ohio law, Ohio law will still prevail.

Another amendment to the Ohio Business Opportunity Law relates to arbitration. Typically, franchise agreements include provisions that indicate disputes between parties be resolved through arbitration in a specified state.

However, the new language says that arbitrations between franchisors and Ohio franchisees are required to take place within the state of Ohio regardless if the franchisor’s main office is located outside of the Ohio state line.

Overall, the legislative intent of the new language is clear: Ohio law will dictate when it comes to resolving disputes between franchisors and franchisees who do business within state borders.

It remains to be seen how the law will evolve or whether it will trigger other states to follow suit. Other states have addressed the franchisor-franchisee relationship as well and we will comment on some of those statutes in future posts.

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