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Pennsylvania Franchise Law

A new house bill introduced in the Pennsylvania General Assembly seeks to “promote the vitality of franchising through fair, equitable and responsible franchise practices.” If the bill passes, its true impact is a fundamental shift in the relationship between franchisors and franchisees. The bill contains a number of intriguing provisions, a majority of which alter some aspect of the current “standard” franchisor-franchisee relationship. The following is a brief summary of several key provisions of the bill.

The bill imposes an obligation on the franchisor to provide initial training and continuing commercial or technical assistance during the entire term of the franchise agreement. While most “standard” franchise agreements require the franchisor to provide initial training, continuous training is generally provided at the franchisor’s discretion. If the bill passes, this may be an area of frequent disputes because the frequency, nature and quality of the training is subjective and the parties may differ in their opinions as to whether the training was sufficient.

The bill also restricts a franchisor’s ability to limit the sources of equipment, goods and services regardless of whether the equipment, goods and services are branded with the franchisor’s trademark. Franchisors would also be prohibited from selling new franchises or operating new channels of distribution located in an “unreasonable proximity” to an existing franchisee regardless of territorial limitations contained within the franchise agreement. Additionally, the bill limits the geographic scope of non-competition provisions so that a franchisee would be permitted to continue operating a business at the site of the franchised business location after the franchise agreement expires or is terminated.

For franchisors, controlling suppliers, selling new franchises, developing new channels of distribution and enforcing non-competition provisions are crucial aspects of the franchise relationship. Not surprisingly, these provisions are typically drafted to favor the franchisor.

Other aspects of the bill (i) declare that the parties must make reasonable changes to the franchise system to incorporate new technologies; (ii) impose a fiduciary duty on the franchisor; (iii) obligate the franchisor to exercise the highest standard of care when performing certain services, including administering the advertising fund; and (iv) require that all disputes be resolved in Pennsylvania.

If this bill passes, it will have a significant impact on franchising in Pennsylvania. Some franchise attorneys and professionals have already speculated that the bill will cause some franchisors to cease franchising in Pennsylvania altogether. We will continue to monitor the bill’s progress and provide an update if it passes.

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