Fair Franchise Practices Bill: Termination

(UnhappyFranchisee.Com) Among other things, proposed PA House Bill 1620 (Fair Franchise Practices Bill) states “A franchisor may not terminate a franchise contract or substantially change the competitive circumstances of the franchise prior to the expiration of its terms except for good cause which is… based on a legitimate and good faith business reason.“

It states:

§ 916. Termination.

(a) Good cause.–A franchisor may not terminate a franchise contract or substantially change the competitive circumstances of the franchise prior to the expiration of its terms except for good cause which is:

(1) based on a legitimate and good faith business reason; and

(2) not arbitrary or capricious under practices of and the requirements imposed by the franchisor in other similar circumstances.

(b) Obligations.–Prior to termination under this section, a franchisor must do all of the following:

(1) Specify the precise basis for the proposed termination. This paragraph includes a description of the material terms of the franchise contract with which the franchisee is not in compliance.

(2) Except as set forth in subsection (c), provide to the franchisee a reasonable period of time, of at least 30 days but not more than 90 days, to:

(i) cure nonfinancial events of default; and

(ii) pay money due to the franchisor or its affiliate.

(3) Offer to purchase from the franchisee the franchisee’s current inventory meeting the franchisor’s then- present standards and held for sale in accordance with the franchise contract at the higher of:

(i) wholesale value; or

(ii) the franchisee’s cost.

(c) Cure and settlement exceptions.–A franchisor need not provide an opportunity under subsection (b)(2) if any of the following apply:

(1) The franchisee:

(i) is declared bankrupt;

(ii) is judicially determined to be insolvent; or

(iii) makes an assignment for the benefit of creditors.

(2) The franchisee voluntarily abandons the franchised business for five consecutive days. This paragraph shall not apply if the abandonment is the result of a natural disaster or other cause beyond the control of the franchisee.

(3) After reasonable notice, the franchisee operates the franchised business in a manner which imminently endangers the public health and safety.

(4) The franchisee:

(i) is sentenced for a felony which materially and adversely affects the operation, maintenance and goodwill of the franchised business in the relevant market; and

(ii) within 90 days of sentencing, does not transfer the franchise under section 917 (relating to transfer of franchise system).

What do you think of the Termination provision of the proposed PA House Bill 1620 (Fair Franchise Practices Bill)?

Do you believe that making this provision law will be good for franchising?

Why or why not?  Please share a comment below.

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TAGS:  Franchise Termination, Franchise Renewal Agreements, franchise legislation, PA House Bill 1620, PA Responsible Franchise Practices Bill, Fair Franchising Legislation, Franchise laws, Pennsylvania State Rep. Peter Daley

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