Florida Legislature Proposes Franchisee Protection Act

Florida legislators have recently sponsored bills in the house and senate which aim to add a statutory layer of protection for Florida franchisees dealing with out-of-state franchisors. SB 1076 sponsored by Senator Greg Steube (R – Sarasota) is entitled the “Protect Florida Small Business Act“. This act states that the intent of the Florida Legislature is “to promote fair business relations between franchisees and franchisors and to protect franchisees against unfair treatment by franchisors.” The proposed bill provides that “it is necessary to regulate the conduct of franchisors and their representatives in order to prevent fraud, unfair business practices, unfair methods of competition, impositions, and other abuses upon franchisees in this state.”

HB 1219, also known as the “Small Business Parity Act,” is being sponsored by Representative Heather Fitzenhagen (R – Ft. Myers).  The house bill also sets forth the intent of the Legislature to “promote fair business relations between franchisees and franchisors and to protect franchisees against unfair treatment by franchisors.” Both the house and senate bills acknowledge that “the success and failure of franchise businesses greatly affects the general economy of this state, the public interest and the public welfare.”

SB 1076 and HB 1219 creates Florida Statute Section 686.101, and both bills are similar in nature. SB 1076 includes an initial Section 686.104(1) which provides that a franchisor may not terminate or refuse to renew a franchise except for good cause. The termination or non-renewal of a franchise without good cause constitutes an actionable unfair termination. Good cause is limited to the failure
of the franchisee to substantially comply with the reasonable and material requirements imposed upon the franchisee by the franchise agreement after being given notice at least 90 days in advance of the termination and a reasonable opportunity, which may not be less than 60 days after the date of the notice of noncompliance, to cure the failure. If the franchisee cures the failure within the time given to cure, the termination notice is void. Franchisors may immediately terminate without the opportunity to cure if the franchisee is insolvent, if the franchisee abandons the franchise, if the franchisee fails to comply with any federal, state or local law or regulation for a period of 10 days, if the franchisee commits a felony that significantly, directly and adversely affects the operation of the franchise business, or if the franchisor makes a reasonable determination that continued operation of the franchise business by the franchisee will result in imminent and substantial danger to public health or safety. This first section does not appear in HB 1219.

Franchise agreements generally give franchisors substantial rights to terminate under a number of scenarios. This bill would limit franchisors ability to terminate without good cause and would give franchisees an additional civil remedy against franchisors for terminating under circumstances that would not fall into one of the categories in proposed Section 686.104 in SB 1076.

Section 686.105 of SB 1076 (Section 686.104 in HB 1219) states that a franchisor may not deny the surviving spouse, heir, or estate of a deceased franchisee or the person controlling a majority interest in the franchise the opportunity to participate in the ownership of the franchise or franchise business under a valid franchise agreement for at least 180 days after the death of the franchisee or person controlling a majority interest in the franchise. Subsections (2) and (3) are normally found in franchise agreements but it provides that a franchisee may sell, transfer or assign a franchise, all or substantially all of the assets of the franchise business, or an interest in the franchise with the prior written consent of the franchisor which cannot be withheld unless the transferee does not meet certain qualifications which must be provided to franchisees. Certain notice provisions which might need to be included in Florida franchise agreements are enumerated in the proposed bill.

SB 1076 Section 686.106 (HB 1219 686.105) is created to read that the parties shall deal with each other in good faith and in a commercially reasonable manner, and the franchisor may not do the following: (a) terminate or fail to renew a franchise agreement in violation of the Act; (b) prevent a sale, transfer, or assignment of a franchise in violation of Section 686.104; (c) violate the Florida Deceptive and Unfair Trade Practices Act under part II of chapter 501 or s. 817.416 in connection with its business as a franchisor, an officer, an agent, or another representative thereof; (d) require a franchisee to assent to a release, assignment, novation, waiver, or estoppel that would relieve any person from liability imposed under Sections 686.101-686.109, including, but not limited to, through the use of a disclaimer or checklist designed to avoid a protection under Sections 686.101-686.109; (e) require a franchisee to assent to the use of a choice of law provision by selecting a different state’s law to govern the relationship of the parties.

For franchise litigators in this state, the venue provision in Section 686.105(2) could be the most interesting and beneficial provision to Florida franchisees. One of the biggest hurdles for Florida franchisees in attempting to assert their rights in a court of law or through arbitration is the venue clause which often requires Florida franchisees to litigate in venues outside of the State of Florida. Imagine if you owned a franchise and were a victim of fraud by the franchisor but the franchise agreement provides in the dispute resolution clause that there must be an in-person mediation in Tacoma, Washington, as a condition precedent to filing a lawsuit and then the lawsuit must be filed in Tacoma, Washington.  Courts would likely enforce such a forum selection clause under the prevailing law which heavily favors enforcing valid forum selection clauses. For a struggling franchisee, the cost of going to mediation and finding a local counsel in Seattle would essentially bar the franchisee’s legal claim. HB 1219 would effectively benefit Florida franchise lawyers because Florida franchisees would be able to bring their claims here in the Florida.

SB 1076 Section 686.107 (HB Section 686.106) provides that a franchise agreement or other contract, a part thereof or practice thereunder, which is in violation of any provision of Sections 686.101-686.109 is deemed against public policy and is void and unenforceable. An aggrieved party may choose to only seek to void the portion of the agreement or contract that is unenforceable and continue to enforce the remainder of the agreement or contract.

Section 686.108 of SB 1076 (HB Section 686.107) states that a provision in a franchise agreement restricting the venue to a forum outside of this state or selecting the law of any other state or jurisdiction other than this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchisee that was, at the time of signing, a resident of this state or a business entity established in this state or involving a franchise business either operating or planning to be operated in this state. Moreover, an agreement between a Florida-based franchisor and a franchisee with none of these stated connections to this state is not subject to this act, regardless of whether the franchise agreement contains a choice of law provision selecting this state.

The remedies for violating the statute discussed above is found in SB 1076 Section 686.109 (HB 1219 686.108) states that any person aggrieved or injured in his or her business or property by any violation of these acts may bring an action in state or federal court and shall recover damages sustained and the costs of such action including reasonable attorney’s fees.  This is a broad remedy which may impact franchise agreements that require arbitration. The language in this act seems to give franchisees the right to bypass the arbitration requirement.

In subsection (2) of the “remedies” section, the act provides that a person aggrieved by a violation of this act may bring an action to obtain a declaratory judgment stating that an action or a practice violates this act and may obtain injunctive relief enjoining a franchisor that has violated, is violating, or is otherwise likely to violate these sections from committing the violation. Subsection (3) states that the remedies provided in this section are in addition to any other remedies provided by law or in equity, including, but not limited to, the Florida Deceptive and Unfair Trade Practices Act and Section 817.416.  Experienced franchise litigators know that claims under the Florida Deceptive and Unfair Trade Practices Act and Section 817.416 are the two primary “Florida” causes of action by franchisees in franchise disputes.

These acts apply to any person or franchisor who engages directly or indirectly in an agreement or contract within this state in connection with a franchise or any franchise whose franchisee is a resident of this state, domiciled in this state, or whose franchise business is, has been, or is intended to be operated in this state, is subject to Sections 686.101-686.109 and the jurisdiction of the courts of this state for violations of Sections 686.101-686.109. The acts apply to: (a) any franchise entered into, renewed, amended, or revised after the effective date of Sections 686.101-686.109; (b) any existing franchise of an indefinite duration which may be terminated by the franchisee or franchisor without cause; and (c) any existing franchise entered into before the effective date of Sections 686.101-686.109, only to the extent that the acts do not significantly impair the existing contract rights between the parties.

Lastly, these proposed bills address Section 817.416, which is a somewhat limited statute governing franchisors that covers misrepresentation claims, by stating that Section 817.416 continues to govern the claims of franchisees, distributors, and any other entities, past, present, or future, which are covered by Section 817.416. But, importantly, after July 1, 2018, Section 817.416 shall cover area franchisees and shall prohibit a waiver of that section by choice of venue clauses, choice of law clauses, checklists, or any other contract provision, scheme, or device which would waive or otherwise impact the rights of a franchisee or distributor to make a claim under Section 817.416.

SB 1076 and HB 1219 have not gone to committee yet but, if passed, these acts are proposed to go in effect on July 1, 2018. For some additional context about this proposed law, see “Greg Steube, Heather Fitzenhagen push bills to help franchise owners” at Floridapolitics.com.

Wasch Raines LLP represents established franchisors, emerging franchisors, startup franchisors and franchisees in Florida and around the globe. While these proposed bills are not yet in committee, we stand ready to advise our franchise clients on the impact of HB 1219 and SB 1076 should they become law. If you are a involved in a franchise dispute and need legal counsel, our franchise litigators regularly represent both franchisees and franchisors in federal court, state court and arbitration.

 About Wasch Raines LLP

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