The Patient Protection and Affordable Care Act is a federal statute that was signed into law on March 23, 2010. Along with the Health Care and Education Reconciliation Act of 2010 (signed into law on March 30, 2010), the Act is the product of the health care reform agenda.
One provision of this Act requires restaurants or similar food establishments that are part of a chain with 20 or more locations (regardless of the ownership of the 20 locations) to disclose, with certain exceptions, nutritional information. The new law requires covered restaurants to display the number of calories contained in standard menu items on the menu listing the item for sale and on menu boards (including drive-thru). This information also must be available in a written form on the premises and the menu listings must indicate that this information is available on premise. Restaurants also must display a succinct statement concerning suggested daily caloric intake, as specified by the Secretary of Health and Human Services by regulation, to enable the public to understand the significance of the provided nutrition information.
Covered restaurants will have to comply with the Act’s labeling provisions when the Food and Drug Administration completes its implementing regulations. The FDA’s proposed regulations must be published by March 20, 2011. The Act required these provisions to be fully implemented by January 1, 2014.
Monday, September 20, 2010
Tuesday, September 7, 2010
North Carolina Bill Would Amend Business Opportunity Act to Include Franchises
North Carolina has a pending bill, called the North Carolina Franchisee and Business Opportunity Purchasers Protection Act, that would require franchisors to comply with the FTC Franchise Rule.
If passed, franchisors will have to file 2 copies of the required disclosure document with the North Carolina Secretary of State. One of the remedies afforded to franchisees under the bill is the right to void the agreement (in addition to seeking damages) in cases involving untrue or misleading statements, disclosure violations, or other noncompliance. The bill provides for certain exemptions that mirror those in the FTC Franchise Rule and for large franchisors.
A franchisor will have to establish either a surety bond or trust account if the franchisor makes any of the following representations in the pre-sale process: (1) that the prospective franchisee will derive income from the franchise that exceeds the price paid for the franchise; or (2) that the franchisor will refund all or part of the price paid for the franchise, or repurchase any of the products, equipment, supplies or chattels supplied by the franchisor if the franchisee is unsatisfied and pays to the seller an initial, required consideration that exceeds $200. This last provision is troublesome for franchisors that offer to refund some or all of the initial franchise fee if the franchisee fails the initial training program or is unable to locate a suitable site in a timely manner.
House Bill 2036 passed its first reading and was referred to the Committee on Commerce, Small Business, and Entrepreneurship on May 26, 2010.
If passed, franchisors will have to file 2 copies of the required disclosure document with the North Carolina Secretary of State. One of the remedies afforded to franchisees under the bill is the right to void the agreement (in addition to seeking damages) in cases involving untrue or misleading statements, disclosure violations, or other noncompliance. The bill provides for certain exemptions that mirror those in the FTC Franchise Rule and for large franchisors.
A franchisor will have to establish either a surety bond or trust account if the franchisor makes any of the following representations in the pre-sale process: (1) that the prospective franchisee will derive income from the franchise that exceeds the price paid for the franchise; or (2) that the franchisor will refund all or part of the price paid for the franchise, or repurchase any of the products, equipment, supplies or chattels supplied by the franchisor if the franchisee is unsatisfied and pays to the seller an initial, required consideration that exceeds $200. This last provision is troublesome for franchisors that offer to refund some or all of the initial franchise fee if the franchisee fails the initial training program or is unable to locate a suitable site in a timely manner.
House Bill 2036 passed its first reading and was referred to the Committee on Commerce, Small Business, and Entrepreneurship on May 26, 2010.
North Carolina Bill Pending Would Add Reporting Requirement For Franchisors
North Carolina has a bill pending that would require franchisors to report certain information about their North Carolina franchisees, similar to the law that was enacted in New York last year. Under the bill, a covered taxpayer would have to file an annual report by May 1 of each year. The annual report would have to include: the gross sale of each franchise located in North Carolina (as each franchisee reported to the franchisor), the total amount of sale by the franchisor to the franchisee itemized by franchisee, and the income of each franchise located in North Carolina (as each franchisee reported to the franchisor).
As written, the bill is vague on the covered franchisors, referring to them only as “taxpayers,” without any further clarification. Therefore it is unclear on whether a franchisor that does not have to file tax returns in North Carolina would be considered a “taxpayer,” although the drafters of the bill probably intended to include all franchisors that have franchises in North Carolina.
House Bill 2001 passed its first reading and was referred to the Committee on Commerce, Small Business, and Entrepreneurship on May 26, 2010.
As written, the bill is vague on the covered franchisors, referring to them only as “taxpayers,” without any further clarification. Therefore it is unclear on whether a franchisor that does not have to file tax returns in North Carolina would be considered a “taxpayer,” although the drafters of the bill probably intended to include all franchisors that have franchises in North Carolina.
House Bill 2001 passed its first reading and was referred to the Committee on Commerce, Small Business, and Entrepreneurship on May 26, 2010.
New Jersey Expands Franchise Practices Act
New Jersey amended its Franchise Practices Act by expanding the definition of "place of business." This change was effective immediately on signing on January 16, 2010.
The new definition of “place of business” is: a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services. Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle, except that with respect to persons who do not make a majority of their sales directly to consumers, "place of business" means a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services, or an office or a warehouse from which franchisee personnel visit or call upon customers or from which the franchisor's goods are delivered to customers.
This expanded definition now includes wholesale distribution businesses that deliver their products to their customers, rather than having the customers come to the distributor’s place of business.
The new definition of “place of business” is: a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services. Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle, except that with respect to persons who do not make a majority of their sales directly to consumers, "place of business" means a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services, or an office or a warehouse from which franchisee personnel visit or call upon customers or from which the franchisor's goods are delivered to customers.
This expanded definition now includes wholesale distribution businesses that deliver their products to their customers, rather than having the customers come to the distributor’s place of business.
Virginia Clarifies Requirement for Current Financial Statements In FDD
Virginia made a change to the Regulations under its Retail Franchising Act, effective July 1, 2010. The new requirement is that the audited financial statements must be current within 120 days of the date of filing for initial or renewal franchise registrations. If the audited financial statements are not current within this time period, the franchisor must include in its FDD the franchisor’s unaudited financial statements that are current within 120 days. The unaudited financial statements must be prepared in accordance with generally accepted accounting practices.
Since many states already have this requirement, the Virginia change should not present any new problems for franchisors desiring to register or renew a registration in Virginia. You simply must remember to include the unaudited statements in your FDD if your audited financial statements are dated more than 120 days before the date you file your initial or renewal registration.
Since many states already have this requirement, the Virginia change should not present any new problems for franchisors desiring to register or renew a registration in Virginia. You simply must remember to include the unaudited statements in your FDD if your audited financial statements are dated more than 120 days before the date you file your initial or renewal registration.
Monday, August 30, 2010
Maryland Revises Statute To Change Delivery Timing Requirements
Maryland is one of only 5 states that still adhere to the old standards for delivery of the FDD to a prospective franchisee, requiring that the FDD be delivered at the earlier of the first personal meeting held to discuss the franchise sale or at least 10 business days before the prospective franchisee signs a binding agreement with, or makes a payment to, the franchisor or the franchisor’s affiliate in connection with the proposed franchise sale.
A new change in the Maryland statute will revise the delivery requirements to coincide with the requirements under the revised FTC Franchise Rule. After October 1, 2010 in Maryland, the FDD must be delivered at the earlier of: (a) 14 calendar days before the prospective franchisee signs any binding agreement with the franchisor or pays any consideration that relates to the franchise relationship; or (b) a prospective franchisee’s reasonable request to receive a copy of the FDD. This change makes the Maryland requirements substantially similar to the requirements under the FTC Franchise Rule.
Currently, most franchisors include a separate disclosure in their FDDs’ Receipt page that identifies the different delivery requirements under Maryland law. By October 1, 2010, every franchisor that provides this additional Maryland disclosure should revise its Receipt page to delete the reference to the old Maryland delivery requirements.
Maryland has issued an Interpretive Opinion that provides that this change, in the absence of other material changes, will not require an amendment filing to any current Maryland registration. The Interpretive Opinion also provides that Maryland will not pursue any action against a franchisor that begins to comply with the changed requirements before the October 1, 2010 implementation date. However, this position will not change the statutory right of action that a prospective franchisee may have, so the safest course of action is to begin complying with the new requirement on October 1, 2010, rather than before.
A new change in the Maryland statute will revise the delivery requirements to coincide with the requirements under the revised FTC Franchise Rule. After October 1, 2010 in Maryland, the FDD must be delivered at the earlier of: (a) 14 calendar days before the prospective franchisee signs any binding agreement with the franchisor or pays any consideration that relates to the franchise relationship; or (b) a prospective franchisee’s reasonable request to receive a copy of the FDD. This change makes the Maryland requirements substantially similar to the requirements under the FTC Franchise Rule.
Currently, most franchisors include a separate disclosure in their FDDs’ Receipt page that identifies the different delivery requirements under Maryland law. By October 1, 2010, every franchisor that provides this additional Maryland disclosure should revise its Receipt page to delete the reference to the old Maryland delivery requirements.
Maryland has issued an Interpretive Opinion that provides that this change, in the absence of other material changes, will not require an amendment filing to any current Maryland registration. The Interpretive Opinion also provides that Maryland will not pursue any action against a franchisor that begins to comply with the changed requirements before the October 1, 2010 implementation date. However, this position will not change the statutory right of action that a prospective franchisee may have, so the safest course of action is to begin complying with the new requirement on October 1, 2010, rather than before.
Tuesday, June 8, 2010
Manitoba will be the next Canadian province to enact franchise legislation
A new franchise disclosure act has been introduced in Manitoba, which if passed will make Manitoba the 5th Canadian Province to enact franchise disclosure legislation. Bill 15, The Franchises Act was introduced into the legislature in April 2010. The new Act is modeled after the Uniform Law Conference of Canada’s (ULCC) model franchise legislation and is similar to Ontario’s franchise disclosure law, the Arthur Wishart Act.
Some of the provisions of the Manitoba law include:
Some of the provisions of the Manitoba law include:
- A substantially complete disclosure document satisfies the disclosure document delivery requirements, even if there is a technical irregularity or mistake not affecting the substance of the document.
- The Manitoba law will not apply to contractual agreements for the purchase of a reasonable amount of goods or services at reasonable wholesale prices. This provides relief to distribution systems who would be subject to this legislation due solely to the payment element of the definition of a franchise.
- Franchisors will be able to use deposits, site selection and confidentiality agreements during the 14 day disclosure period. However, for confidentiality agreements, the franchisor will not be able to prohibit the prospective franchisee from disclosing information to a franchisee organization or to individual franchisees of the franchisor’s system.
- After its deletion from the ULCC model legislation, the sophisticated franchisee exemption that is contained in The Wishart Act is not included in the Manitoba law. This exemption only applies if the franchisee’s investment is more than $5,000,000 and therefore may not be a heavily used exemption.
Tuesday, May 18, 2010
UK High Court Determines That Franchisors Owe A Duty Of Care To Franchisees
The recent English High Court decision in MCB Printing and Design Limited v. Kall Kwik UK Limited [2010] EWHC 624 (QB) establishes that a franchisor owes a duty of care to its franchisees and future franchisees.
In this case, the franchisee made 2 claims, 1 for negligent advice on build-out costs and 1 for failing to complete required assistance to get the franchisee up and running.
The first, a “premises claim”, focused on allegedly negligent advice that the franchisor gave on the cost of refitting the premises to the franchisor’s mandatory requirements. The actual costs were more than double the franchisor’s original assessment. The judge found the advice to be negligent, as the estimate was provided without consulting the franchisor’s own preferred supplier whose estimate later proved more accurate.
The second claim was a marketing claim based on the franchisor’s failure to provide the level and quality of marketing advice and support agreed by the parties. The judge found that the franchisor breached the franchise agreement by failing to complete installation of necessary technology that would have helped the franchisee manage its grand opening marketing campaign and by failing to provide the franchisee with advice, know-how and guidance in such areas as management, finance, marketing and methods of operation.
The court held that the franchisor’s inadequate assessment of refitting costs was a breach of its duty of care to the franchisee even though the franchisee had not yet signed a franchise agreement and become its franchisee.
This decision establishes that in the United Kingdom, a franchisor owes some duty of care to franchisees and even potential franchisees.
For United States franchisors that sell franchises in the United Kingdom, this case reinforces our conservative approach that offering initial investment costs, such as we offer in the United States, is risky business in the absence of a thorough knowledge of the U.K. market.
In this case, the franchisee made 2 claims, 1 for negligent advice on build-out costs and 1 for failing to complete required assistance to get the franchisee up and running.
The first, a “premises claim”, focused on allegedly negligent advice that the franchisor gave on the cost of refitting the premises to the franchisor’s mandatory requirements. The actual costs were more than double the franchisor’s original assessment. The judge found the advice to be negligent, as the estimate was provided without consulting the franchisor’s own preferred supplier whose estimate later proved more accurate.
The second claim was a marketing claim based on the franchisor’s failure to provide the level and quality of marketing advice and support agreed by the parties. The judge found that the franchisor breached the franchise agreement by failing to complete installation of necessary technology that would have helped the franchisee manage its grand opening marketing campaign and by failing to provide the franchisee with advice, know-how and guidance in such areas as management, finance, marketing and methods of operation.
The court held that the franchisor’s inadequate assessment of refitting costs was a breach of its duty of care to the franchisee even though the franchisee had not yet signed a franchise agreement and become its franchisee.
This decision establishes that in the United Kingdom, a franchisor owes some duty of care to franchisees and even potential franchisees.
For United States franchisors that sell franchises in the United Kingdom, this case reinforces our conservative approach that offering initial investment costs, such as we offer in the United States, is risky business in the absence of a thorough knowledge of the U.K. market.
Tuesday, April 6, 2010
Proposed Changes To Virginia Franchise Law
The Virginia Division of Securities and Retail Franchising has submitted to the Virginia State Corporation Commission proposed revisions to the rules and regulations under the Virginia Retail Franchising Act. The proposed revisions would require the financial statements that are included as an exhibit to the FDD be current within 120 days of filing the initial or renewal application. If the required audited financial statements are dated more than 120 days before the filing date, the FDD must contain an unaudited balance sheet as of a date that is within the 120 days and an unaudited statement of income or operations covering the time from the date of the audited financial statements and the date of the unaudited balance sheet. Any unaudited financial statements must be prepared in accordance with generally accepted accounting standards.
The proposal recommends an effective date of July 1, 2010 for the new regulations.
The proposed revisions may be viewed in full at http://www.scc.virginia.gov/case under Case No. SEC-2010-00021.
The proposal recommends an effective date of July 1, 2010 for the new regulations.
The proposed revisions may be viewed in full at http://www.scc.virginia.gov/case under Case No. SEC-2010-00021.
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