[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 470 Introduced in House (IH)]

<DOC>






115th CONGRESS
  1st Session
                                H. R. 470

 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 12, 2017

 Mr. Ellison (for himself, Mr. Huffman, Mr. Conyers, and Ms. McCollum) 
 introduced the following bill; which was referred to the Committee on 
                             the Judiciary

_______________________________________________________________________

                                 A BILL


 
 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Fair Franchise Act 
of 2017''.
    (b) Table of Contents.--The table of contents of this Act is the 
following:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
Sec. 3. Unfair franchise practices.
Sec. 4. Standards of conduct.
Sec. 5. Procedural fairness.
Sec. 6. Transfer of a franchise.
Sec. 7. Renewal of the franchise; notice.
Sec. 8. Termination; good cause; notice; opportunity to cure.
Sec. 9. Effect of termination.
Sec. 10. Transfer of franchise by franchisor.
Sec. 11. Private right of action.
Sec. 12. Scope and applicability.
Sec. 13. Definitions.
Sec. 14. Severability.
Sec. 15. State attorneys general.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--Congress finds the following:
            (1) Franchise businesses represent a large and growing 
        segment of the Nation's retail and service businesses and are 
        rapidly replacing more traditional forms of small business 
        ownership in the American economy.
            (2) Franchise businesses involve a joint enterprise between 
        the franchisor and franchisees in which each party has a vested 
        interest in the success of the franchised business.
            (3) Most prospective franchisees lack bargaining power and 
        generally invest substantial amounts to obtain a franchise 
        business when they are unfamiliar with operating a business, 
        with the business being franchised, and with industry practices 
        in franchising.
            (4) Franchisees invest a substantial amount of their own 
        money, take loans (often secured by their own home and 
        retirement accounts, and the American taxpayer via loans 
        guaranteed by the Small Business Administration), and enter 
        into long-term commercial leases and other obligations for the 
        franchise businesses in order to support themselves and their 
        families.
            (5) Franchise agreements reflect a profound imbalance of 
        contractual power in favor of the franchisor, and fail to give 
        due regard to the legitimate business interests of the 
        franchisee, as a result of the franchisor reserving one-sided 
        and pervasive contractual rights over the franchise 
        relationship.
            (6) Franchisees may suffer substantial financial losses 
        when the franchisor does not provide truthful or complete 
        information regarding the franchise opportunity, or where the 
        franchisor does not act in good faith or in a commercially 
        reasonable manner in the performance of the franchise 
        agreement.
            (7) Unlike investments in securities, an investment in a 
        franchise may lead to substantial additional losses well beyond 
        the initial capital investment. Unlike employment, due to long-
        term contractual and lease obligations, franchisees generally 
        cannot simply resign and leave the franchised business without 
        substantial liabilities.
            (8) Traditional common law doctrines have not evolved 
        sufficiently to protect franchisees adequately from fraudulent 
        or unfair practices in the sale and operation of franchise 
        businesses, and significant contractual and procedural 
        restrictions have denied franchisees adequate legal recourse to 
        protect their interests in such businesses.
            (9) Contractual obligations of the franchisee to the 
        franchisor may create an environment that makes it difficult to 
        pay workers significantly above minimum wage or provide 
        reasonable benefits to workers.
            (10) A franchisee's freedom to achieve a contract 
        negotiated at arm's length is greatly limited by the disparity 
        of bargaining power, lack of consistent legal standards, and 
        other factors described above. This Act is necessary to restore 
        true freedom to contract, and to improve the living standards 
        of employees of franchises.
            (11) The Federal Government has had a significant interest 
        in regulating franchising and has regulated franchising for 
        over 40 years through the Federal Trade Commission and its 
        Franchise Rule.
    (b) Purpose.--It is the purpose of this Act to--
            (1) promote the compelling interest of the public in fair 
        business relations between franchisees and franchisors;
            (2) protect franchisees against unfair treatment by 
        franchisors, who inherently have superior economic power and 
        superior bargaining power in the negotiation of the terms and 
        conditions of the franchise relationship;
            (3) provide franchisees with rights and remedies in 
        addition to those existing by contract or common law;
            (4) govern franchise agreements, including any renewals or 
        amendments, to the full extent consistent with the Constitution 
        of the United States; and
            (5) create an environment that gives franchisees 
        opportunity to thrive, therefore having the opportunity to 
        provide better wages and benefits to their employees.

SEC. 3. UNFAIR FRANCHISE PRACTICES.

    (a) Misrepresentations in Required Disclosure.--In connection with 
any disclosure document, notice, or report required by any Federal, 
State, or local law, it shall be unlawful for any franchise seller, 
either directly or indirectly through another person--
            (1) to--
                    (A) make an untrue statement of material fact;
                    (B) fail to state a material fact; or
                    (C) fail to state any fact which would render any 
                required statement or disclosure either untrue or 
                misleading; and
            (2) fail to furnish any prospective franchisee with--
                    (A) all information required to be disclosed by law 
                and at the time and in the manner required;
                    (B) a written statement specifying, prominently and 
                in not less than 14-point type, whether the franchise 
                agreement involved contains a right to renew such 
                agreement; and
                    (C) historical financial performance data including 
                sales, expenses, and profitability data, in the 
                disclosure document or to make any claim or 
                representation to a prospective franchisee whether 
                orally or in writing, which is inconsistent with, or 
                which contradicts, the franchisor's disclosure 
                document.
    (b) Deceptive and Discriminatory Practices.--In connection with the 
performance, enforcement, renewal, or termination of any franchise 
agreement, it shall be unlawful for a franchisor or subfranchisor, 
either directly or indirectly through another person, to do any of the 
following:
            (1) To engage in an act, practice, course of business, or 
        pattern of conduct which operates as a fraud upon any person.
            (2) To hinder, prohibit, or penalize (or threaten to 
        hinder, prohibit, or penalize), directly or indirectly, the 
        free association of franchisees for any lawful purpose, 
        including the formation of or participation in any trade 
        association made up of franchisees or of associations of 
        franchisees.
            (3) To discriminate against a franchisee by imposing 
        requirements not imposed on other similarly situated 
        franchisees.
            (4) To otherwise retaliate, directly or indirectly, against 
        any franchisee for membership or participation in a franchisee 
        association.
            (5) To charge excessive and unreasonable renewal fees. Fees 
        shall not be deemed excessive and unreasonable if they do not 
        exceed 50 percent of the amount of the average initial 
        franchise fee or other required payments then being charged to 
        all franchisees in the market.
            (6) To enforce a clause or provision in a franchise 
        agreement requiring the parties to submit to arbitration unless 
        the parties, each being represented by counsel, have 
        voluntarily entered into an agreement after the dispute arises 
        to submit the dispute to arbitration, and then only if the 
        arbitration is conducted at a location reasonably convenient to 
        the franchisee; provided, however, that the provisions of this 
        subsection shall not prohibit the enforceability of a clause or 
        provision in a franchise agreement which requires the parties 
        to submit to nonbinding mediation conducted at a location 
        reasonably convenient to the franchisee.
            (7) To terminate, cancel, or fail to renew a franchise for 
        the failure or refusal of the franchisee to do any of the 
        following:
                    (A) Refusal to take part in any promotional 
                campaign which is not reasonable, implemented in good 
                faith, and expected to promote the profitability of the 
                franchisee's business.
                    (B) Failure to meet sales quotas suggested or 
                required by the franchisor not expressly set forth in 
                the franchise agreement.
                    (C) Failure or refusal to sell any products or 
                services at a price suggested or required by the 
                franchisor, an affiliate of the franchisor, or any 
                supplier approved by the franchisor.
                    (D) Refusal to keep the franchised premises open 
                and operating during hours which are unprofitable to 
                the franchisee or to preclude the franchisee from 
                establishing its own hours of operation or nonoperation 
                for the period between the hours of 10 p.m. and 6 a.m., 
                unless said business is commonly recognized as an 
                extended hour business or the initial signed franchise 
                agreement required operating during these hours.
                    (E) Refusal to give the franchisor or any supplier 
                financial records of the operation of the franchise 
                which are not related or unnecessary to the performance 
                of franchisee's express obligations under the franchise 
                agreement or records unrelated to the franchise 
                business.
            (8) To restrict a franchisee from associating with other 
        franchisees or from joining, leading, or otherwise 
        participating in a trade or other association, or retaliate 
        against a franchisee for engaging in these activities.
            (9) To require or prohibit any change in management of any 
        franchise unless the requirement or prohibition of the change 
        shall be for good cause, which cause shall be stated in writing 
        by the franchisor and be based on violations of material, 
        reasonable and reasonably required express provisions of the 
        franchise agreement. Good cause shall include requiring that 
        management of the franchise be conducted by--
                    (A) personnel who have been trained in the manner 
                required of all franchise managers in the system; and
                    (B) personnel who are legally eligible for 
                employment in the United States of America.
            (10) To impose on a franchisee by contract, rule, or 
        regulation, whether written or oral, a standard of conduct or 
        performance unless the franchisor, its agents or 
        representatives, sustain the burden of proving the standard to 
        be reasonable, necessary, and uniformly enforced and applied 
        throughout its system of franchisees, franchisor-owned units 
        and licensees. The following are examples of unreasonable 
        conduct:
                    (A) To fail to deal fairly and in good faith or 
                fail to exercise due care with a franchisee or any 
                association or other aggregation or incorporation of 
                franchisees in all business matters, including--
                            (i) proposed and actual transfer of the 
                        franchise;
                            (ii) administration of advertising funds, 
                        rewards programs, and marketing funds; and
                            (iii) the interpretation, administration, 
                        and performance of franchise agreements and 
                        area development or territory agreements.
                    (B) To sell, rent, or offer to sell to a franchisee 
                or require a franchisee to buy any product or service 
                for more than a fair and reasonable price or without 
                the reasonable expectation that the sale or rental 
                transaction itself will be profitable for the 
                franchisee's business.
                    (C) To discriminate between franchisees in the 
                charges offered or made for royalties, goods, services, 
                equipment, rentals, advertising services, or in any 
                other business dealing, unless that discrimination 
                between franchisees--
                            (i) would be necessary to allow a 
                        particular franchisee to fairly meet 
                        competition in the open market;
                            (ii) does not adversely affect the business 
                        of any existing franchisee; and
                            (iii) to the extent that the franchisor 
                        satisfies the burden of proving that any 
                        classification of or discrimination between 
                        franchisees is reasonable, the discrimination 
                        is based on franchises granted at materially 
                        different times and the discrimination is 
                        reasonably related to the difference in time or 
                        on other proper and justifiable distinctions, 
                        and is not arbitrary or intended to be for the 
                        benefit of the franchisor at the expense of any 
                        franchisee. Nothing in this subsection shall be 
                        construed as granting to a franchisor any right 
                        which may be limited by any other State or 
                        Federal statute.
                    (D) To notify the franchisee of a claimed breach of 
                the franchise agreement no later than 180 days from the 
                date the breach arises or 180 days after the franchisor 
                knew or in the exercise of reasonable care should have 
                known of the claimed breach.
                    (E) To require a franchisee to keep the franchised 
                premises open and operating during hours which are 
                unprofitable to the franchisee or to preclude the 
                franchisee from establishing its own hours of operation 
                or nonoperation between the hours of 10 p.m. and 6 
                a.m., unless said business is commonly recognized as an 
                extended hour business, or the initial signed franchise 
                agreement required operating during these hours.
                    (F) To require a franchisee to include noncompete 
                language in employment contracts with its employees.
                    (G) To fail to, without charge, make readily 
                available to franchisees, and provide a physical copy 
                of true, accurate, and complete copies of all records 
                and accountings of marketing, rewards programs, 
                advertising funds, and fees that have been paid by 
                franchisees, vendors, suppliers, and licensees.
                    (H) To impose performance standards on franchises 
                unless the franchisor proves the performance standards 
                are reasonable, necessary, and uniformly enforced.
                    (I) To require or request a franchisee to assent to 
                a release, assignment, novation, waiver, or estoppel 
                which would prospectively relieve any person from 
                liability imposed by this chapter.
                    (J) To require or demand that a franchisee pay 
                liquidated or other post-termination damages in excess 
                of the average monthly royalty fees paid by the 
                franchisee during the prior 12 full calendar months (or 
                the shorter time that the franchised location has been 
                in the system), multiplied by the lesser of 6 months or 
                the number of months remaining in the term of the 
                franchise agreement.
                    (K) To act to accomplish, either directly or 
                indirectly through any parent company, subsidiary, 
                affiliate, or agent, what would otherwise be prohibited 
                under this chapter on the part of the manufacturer or 
                distributor.

SEC. 4. STANDARDS OF CONDUCT.

    (a) Duty of Good Faith.--
            (1) A franchise contract imposes on each party thereto a 
        duty to act in good faith in its performance and enforcement.
            (2) As used in this subsection, a duty of good faith 
        shall--
                    (A) obligate a party to a franchise to do nothing 
                that will have the effect of destroying or injuring the 
                right of the other party to obtain and receive the 
                expected fruits of the contract;
                    (B) obligate a party to do everything required 
                under the contract to accomplish the purposes of the 
                contract; and
                    (C) require honesty in fact and observance of 
                reasonable standards of fair dealing in the trade.
            (3) No provision of any franchise agreement, express or 
        implied, shall be interpreted or enforced in such a way as to 
        obfuscate or avoid a party's duty to act reasonably and in good 
        faith with the other, or otherwise allow a disparate result in 
        the franchise relationship.
    (b) Duty of Due Care.--
            (1) A franchise agreement imposes on the franchisor a duty 
        of due care. Unless a franchisor represents that it has greater 
        skill or knowledge in its undertaking with its franchisees, or 
        conspicuously disclaims that it has any skill or knowledge, the 
        franchisor is required to exercise the skill and knowledge 
        normally possessed by franchisors in good standing in the same 
        or similar types of business.
            (2) For purposes of this subsection--
                    (A) the term ``skill or knowledge'' means something 
                more than the mere minimum level of skill or knowledge 
                required of any person engaging in a service or 
                business and involves a special level of expertise--
                            (i) which is the result of acquired 
                        learning and aptitude developed by special 
                        training and experience in the business to be 
                        licensed under the franchise agreement, or the 
                        result of extensive use and experience with the 
                        goods or services or the operating system of 
                        such business;
                            (ii) which is the result of experience in 
                        organizing a franchise system and in providing 
                        training, assistance and services to 
                        franchisees; and
                            (iii) which a prospective franchisee would 
                        expect in reasonable reliance on the written 
                        and oral commitments and representations of the 
                        franchisor; and
                    (B) a franchisor shall be permitted to show that it 
                contracted for, hired, or purchased the expertise 
                necessary to comply with the requirements of this 
                subsection and that such expertise was incorporated in 
                the franchise or communicated or provided to the 
                franchisee.
            (3) The requirement of this subsection may not be waived by 
        agreement or by conduct, but the franchisor may limit in 
        writing the nature and scope of its skill and knowledge, and of 
        its undertaking with a prospective franchisee, by stating that 
        it claims no skill or knowledge in a particular area, provided 
        that no inconsistent representation, whether written or oral, 
        is made to the prospective franchisee irrespective of any 
        merger or integration clause in the franchise agreement.

SEC. 5. PROCEDURAL FAIRNESS.

    (a) In General.--It shall be unlawful for any franchisor, either 
directly or indirectly through another person, to--
            (1) require any term or condition in a franchise agreement, 
        or in any agreement ancillary or collateral to a franchise, 
        which directly or indirectly violates any provision of this 
        Act;
            (2) require a franchisee to assent to any disclaimer, 
        waiver, release, stipulation, or other provision which would 
        purport--
                    (A) to relieve any person from a duty imposed by 
                this Act, except as part of a settlement of a 
                preexisting bona fide dispute; or
                    (B) to protect any person against any liability to 
                which he would otherwise be subject under this Act by 
                reason of willful misfeasance, bad faith, or gross 
                negligence in the performance of duties, or by reason 
                of reckless disregard of obligations and duties under 
                the franchise agreement; or
            (3) require a franchisee to assent to any waiver, release, 
        stipulation, or other provision, either as part of any 
        agreement or document relating to the operation of a franchise 
        business, in any agreement or document relating to the 
        termination, cancellation, forfeiture, repurchase, or resale of 
        a franchise business, or as a condition for permitting a 
        franchisee to leave the franchise system, which would purport 
        to prevent the franchisee from making any oral or written 
        statement relating to the franchise business, to the operation 
        of the franchise system, or to the franchisee's experience with 
        the franchise business.
    (b) Terms of Agreement.--Any condition, stipulation, provision, or 
term of any franchise agreement, or any agreement ancillary or 
collateral to a franchise, which would purport to waive or restrict any 
right granted under this Act shall be void and unenforceable. No 
stipulation or provision of a franchise agreement, or of an agreement 
ancillary or collateral to a franchise, shall--
            (1) deprive a franchisee of the application and benefits of 
        this Act, of any other Federal law, or of the law of any State 
        in which the franchisee is a resident, or in which the 
        franchisee's place of business is located;
            (2) deprive a franchisee of the right to commence an action 
        against the franchisor for violation of this Act, or for breach 
        of the franchise agreement, or of any agreement or stipulation 
        ancillary or collateral to the franchise, in a court in the 
        State of the franchisee's principal place of business; or
            (3) prevent a franchisee from bringing or participating in 
        any of the following actions:
                    (A) A consolidated action or consolidated 
                arbitration.
                    (B) A mass action or mass arbitration.
                    (C) A class action under Rule 23 of the Federal 
                Rules of Civil Procedure.
                    (D) A class arbitration as authorized by the 
                American Arbitration Association Supplementary Rules 
                for Class Arbitrations.
                    (E) A similar consolidated, mass, or class 
                proceeding permissible under State or Federal statutory 
                or common law, or under the rules of any other 
                arbitration association.
    (c) No Waivers.--Compliance with this Act or with an applicable 
State franchise law is not waived, excused, or avoided, and evidence of 
violation of this Act or of such State law shall not be excluded, by 
virtue of an integration clause, any choice-of-law, choice-of-venue or 
any other provision of a franchise agreement, or an agreement ancillary 
or collateral to a franchise, the parol evidence rule, or any other 
rule of evidence purporting to exclude consideration of matters outside 
the franchise agreement.

SEC. 6. TRANSFER OF A FRANCHISE.

    (a) Transfer of Interest.--A franchisee may assign an interest in a 
franchised business or in a franchise to a transferee provided the 
transferee satisfies the reasonable qualifications then generally 
applied by the franchisor in the offer and sale of franchises. For the 
purpose of this section, a reasonable current qualification for a new 
franchisee is a qualification based upon a legitimate business reason. 
If the proposed transferee does not meet the reasonable current 
qualifications of the franchisor, the franchisor may refuse to permit 
the transfer, provided that the refusal of the franchisor to consent to 
the transfer is not arbitrary or capricious and the franchisor states 
the grounds for its refusal in writing to the franchisee.
    (b) Notice.--A franchisee shall give a franchisor not less than 60 
days written notice of a proposed transfer of a transferable interest, 
and on request shall provide in writing the ownership interests of all 
persons holding or claiming an equitable or beneficial interest in the 
franchise subsequent to the transfer or the franchisee, as appropriate.
    (c) Consent Implied.--A transfer by a franchisee is considered to 
have been approved 60 days after the franchisee submits the request for 
permission to transfer the franchise involved unless, within that time 
the franchisor refuses to consent to the transfer as evidenced in 
writing in accordance with subsection (a).
    (d) Conditions.--A franchisor may require as a condition of a 
transfer that--
            (1) the transferee successfully complete a reasonable 
        training program;
            (2) a reasonable transfer fee be paid to reimburse the 
        franchisor for the franchisor's reasonable and actual expenses 
        directly attributable to the transfer;
            (3) the transferring franchisee pay or make reasonable 
        provision to pay any amount due the franchisor or the 
        franchisor's affiliate; or
            (4) the financial terms of the transfer at the time of the 
        transfer, comply with the franchisor's current financial 
        requirements for franchisees.
    (e) Prohibited Conditions.--A franchisor may not condition its 
consent to a transfer described in subsection (a) on--
            (1) franchisee's forgoing existing rights other than those 
        contained in the franchise agreement;
            (2) a franchisee's entering into a release of claims 
        broader in scope than a counterpart release of claims offered 
        by the franchisor to the franchisee; or
            (3) requiring the franchisee or transferee to make, or 
        agree to make, capital improvements, reinvestments, or 
        purchases in an amount greater than the franchisor could have 
        reasonably required under the terms of the franchisee's 
        existing franchise agreement.
    (f) No Additional Agreement Required After Transfer.--A franchisee 
may assign the franchisee's interest in the franchise for the unexpired 
term of the franchise agreement, and a franchisor shall not require the 
franchisee or the transferee to enter into a franchise agreement that 
has different material terms or financial requirements as a condition 
of the transfer.
    (g) Public Offerings.--A franchisor may not withhold its consent to 
a franchisee's making a public offering of its securities without good 
cause if the franchisee, or the owner of the franchisee's interest in 
the franchise, retains control over more than 25 percent of the voting 
power as the franchisee.
    (h) Other Consolidation.--A franchisor may not withhold its consent 
to a pooling of interests, to a sale or exchange of assets or 
securities, or to any other business consolidation amongst its existing 
franchisees, provided the constituents are each in material compliance 
with their respective obligations to the franchisor.
    (i) Occurrences Not Considered Transfers.--The following 
occurrences shall not be considered transfers requiring the consent of 
the franchisor under a franchise agreement, and a franchisor shall not 
impose any fees, payments, or charges in excess of a franchisor's cost 
to review the relevant matter:
            (1) The succession of ownership or management of a 
        franchise upon the death or disability of a franchisee, or of 
        an owner of a franchise, to the surviving spouse, heir, or 
        partner active in the management of the franchise unless the 
        successor objectively fails to meet within 1 year the then 
        current reasonable qualifications of the franchisor for 
        franchisees.
            (2) Incorporation of a proprietorship franchisee, provided 
        that the franchisor may require a personal guarantee by the 
        franchisee of obligations related to the franchise.
            (3) A transfer within an existing ownership group of a 
        franchise provided that more than 50 percent of the franchise 
        is held by persons who meet the franchisor's reasonable current 
        qualifications for franchisees. If less than 50 percent of the 
        franchise would be owned by persons who objectively meet the 
        franchisor's reasonable current qualifications, the franchisor 
        may refuse to authorize the transfer.
            (4) A transfer of less than a controlling interest in the 
        franchise to the franchisee's spouse or child or children, 
        provided that more than 50 percent of the entire franchise is 
        held by those who meet the franchisor's reasonable current 
        qualifications. If less than 50 percent of the franchise would 
        be owned by persons who objectively meet the franchisor's 
        reasonable current qualifications, the franchisor may refuse to 
        authorize the transfer.
            (5) A grant or retention of a security interest in the 
        franchised business or its assets, or an ownership interest in 
        the franchisee, if the security agreement establishes an 
        obligation on the part of the secured party enforceable by the 
        franchisor to give the franchisor, simultaneously with notice 
        to the franchisee, notice of the secured party's intent to 
        foreclose on the collateral, and a reasonable opportunity to 
        redeem the interest of the secured party and recover the 
        secured party's interest in the franchise or franchised 
        business by satisfying the secured obligation.
            (6) A franchisor may not exercise any purported right of 
        first refusal or right to purchase with regard to any 
        franchise, or interest or assets of a franchisee, upon the 
        happening of any event described in paragraphs (1) through (5).
    (j) Certain Covenants Unenforceable.--After the transfer of a 
transferor's complete interest in a franchise, a franchisor may not 
enforce against the transferor any covenant of the franchise agreement 
purporting to prohibit the transferor from engaging in any lawful 
occupation or enterprise. This subsection shall not limit the 
franchisor from enforcing a contractual covenant against the transferor 
not to exploit the franchisor's trade secrets or intellectual property 
rights (including protection of trade dress) except by agreement with 
the franchisor.

SEC. 7. RENEWAL OF THE FRANCHISE; NOTICE.

    (a) In General.--A franchisor shall not, directly or through an 
officer, agent, or employee, fail to renew a franchise, except for good 
cause shown.
    (b) Fees.--Renewals shall not be subject to unreasonable fees. Fees 
shall not be deemed unreasonable if they do not exceed 50 percent of 
the amount of the average initial franchise fee or other required 
payments then being charged to all franchisees.
    (c) Good Cause for Nonrenewal.--Good cause as described in 
subsection (a) shall be based upon legitimate business reason which 
shall include, the franchisee's refusal or failure to substantially 
comply with any material, reasonable and reasonably necessary express 
obligation of the franchise agreement within the 1-year period prior to 
renewal, including repeated and intentional nonpayment of royalties, 
advertising or marketing fees clearly required by the franchise 
agreement.
    (d) Notice of Nonrenewal.--Before nonrenewal of the franchise, the 
franchisor shall give the franchisee written notice at least 90 days in 
advance of the nonrenewal. The notice shall state all of the reasons 
constituting good cause for the nonrenewal and shall provide that the 
franchisee has 60 days in which to rectify any claimed discrepancy and 
reinstate its right to renew the franchise.
    (e) Preservation of Fees.--If the franchisor requires the 
franchisee to sign a new franchise agreement as a condition of renewal, 
such franchise agreement shall contain the same royalties, advertising 
fees, and other fees as the expiring agreement, no new fees and any 
protected territory in the expiring agreement shall be the same in the 
renewal franchise.
    (f) Prohibited Actions.--A franchisor shall not prohibit, or 
enforce a prohibition against, any franchisee from--
            (1) engaging in any business at any location after 
        expiration of a franchise agreement; or
            (2) using the customer list and telephone numbers 
        associated with the franchise business.
    (g) Rule of Construction.--Nothing in this subsection shall be 
interpreted to prohibit enforcement of any provision of a franchise 
contract obligating a franchisee after expiration or termination of a 
franchise--
            (1) to cease or refrain from using a trademark, other trade 
        secret, or other intellectual property owned by the franchisor 
        or its affiliate;
            (2) to alter the appearance of the business premises so 
        that it is not substantially similar to the standard design, 
        decor criteria, trade dress or motif in use by other 
        franchisees using the same name or trademarks within the 
        proximate trade or market area of the business; or
            (3) to modify the manner or mode of business operations so 
        as to avoid any substantial confusion with the manner or mode 
        of operations which are unique to the franchisor and commonly 
        in practice by other franchisees using the same name or 
        trademarks within the proximate trade or market area of the 
        business.

SEC. 8. TERMINATION; GOOD CAUSE; NOTICE; OPPORTUNITY TO CURE.

    (a) In General.--A franchisor shall not, directly or through an 
officer, agent, or employee, terminate or cancel a franchise, or 
substantially change the competitive circumstances of the franchisee, 
except for good cause shown.
    (b) Default Provisions.--A default under one franchise agreement 
shall not in and of itself constitute a default under another franchise 
agreement to which the franchisee or an affiliate of the franchisee is 
a party. Any cross-default provisions are null and void.
    (c) Notice.--Prior to termination or cancellation of the franchise, 
the franchisor shall give the franchisee written notice at least 90 
days in advance of the termination. The notice shall state all of the 
reasons constituting good cause for termination or cancellation and 
shall provide that the franchisee has 60 days in which to rectify any 
claimed defaults.
    (d) Exception to Notice Requirement.--The requirement for 90 days 
advance written notice for termination shall not apply if the reason 
for termination is because--
            (1) the alleged grounds are voluntary abandonment by the 
        franchisee of the franchise relationship, in which event, such 
        notice may be given 15 days in advance of the termination or 
        cancellation; or
            (2) the conviction of the franchisee in a court of 
        competent jurisdiction of an offense, where the conviction is 
        no longer appealable and the offense is--
                    (A) punishable by a term of imprisonment in excess 
                of 1 year;
                    (B) directly related to the business conduct 
                pursuant to the franchise; or
                    (C) materially impairs the goodwill value of the 
                franchise or the franchised trademark. In that event, 
                such notice may be given at any time following the date 
                on which the conviction is no longer appealable and 
                shall be effective upon delivery and written receipt of 
                the notice. In no event shall any franchisor collect 
                any financial penalty or fee, however delineated, as a 
                consequence of such conviction.
    (e) Additional Notice.--If the reason for termination or 
cancellation is nonpayment of sums due under the franchise agreement, 
the franchisee shall be entitled to written notice of such default, and 
shall have 15 days in which to cure such default from the date of such 
notice. For such nonpayment defaults a franchisee has the right to cure 
3 times in any 12-month period during the period of the franchise 
agreement.
    (f) Notice of Imminent Danger.--If the reason for termination or 
cancellation is violation of any law or regulation relating to an 
imminent danger to public health or safety the franchisee shall be 
entitled to immediate written notice and shall have 24 hours following 
receipt of such notice to cure such violation.
    (g) Good Cause.--A franchisee may terminate a franchise agreement 
for good cause shown, without any further liability to the franchisor. 
Good cause shall include changes to the franchise system or the 
competitive circumstances of the franchise business, which would cause 
substantial negative impact or substantial financial hardship to the 
franchisee in the operation of its franchise.

SEC. 9. EFFECT OF TERMINATION.

    (a) In General.--Upon termination of a franchise for whatever cause 
or reason, except voluntary relinquishment or abandonment of the 
franchise by the franchisee or the expiration of the franchise 
agreement where the franchisee does not elect to renew, the franchisor 
shall fairly compensate the franchisee or franchisee's estate for the 
fair market value at the time of termination of the franchise, of the 
franchisee's inventory, supplies, equipment, and furnishings purchased 
by the franchisee from the franchisor or its approved sources and the 
fair market value of the going concern value and good will of the 
business, if any, exclusive of personalized items which have no value 
to the franchisor and inventory, supplies, equipment, and furnishings 
not reasonably required in the conduct of the franchise business; 
provided, however, that--
            (1) compensation need not be made to franchisee of going 
        concern value and good will if the franchisor agrees in writing 
        not to enforce a covenant which restrains the franchisee from 
        competing with the franchisor in the same or substantially 
        similar business in the same or substantially similar manner at 
        the same location using the same property except the 
        franchisor's registered trademark or trade name; and
            (2) a franchisor may offset against amounts owed to a 
        franchisee under this subsection any amount mutual agreed upon 
        and owed by the franchisee to franchisor which is not the 
        subject of a good faith dispute by the franchisee.
    (b) Rule of Construction.--The provisions of this section shall not 
be construed to permit the termination or nonrenewal of any franchise 
agreement except in accordance with the express terms of the franchise 
agreement and this Act.

SEC. 10. TRANSFER OF FRANCHISE BY FRANCHISOR.

    A franchisor shall not transfer, by sale or otherwise, its interest 
in a franchise system unless--
            (1) the franchisor provides, not less than 30 days before 
        the effective date of transfer, notice to every franchisee of 
        the intent to transfer the franchisor's interest in the 
        franchise or of substantially all of the franchises held by the 
        franchisor;
            (2) such notice is accompanied by a complete description of 
        the business and financial terms of the proposed transfer or 
        transfers; and
            (3) upon the transfer, the entity assuming the franchisor's 
        obligations has the business experience and financial means to 
        adequately perform all of the franchisor's obligations in the 
        ordinary course of business.

SEC. 11. PRIVATE RIGHT OF ACTION.

    (a) In General.--A franchisee who is injured by a violation or 
threatened violation of this Act, or of section 436.1 of title 16, Code 
of Federal Regulations (relating to disclosure requirements and 
prohibitions concerning franchising and business opportunity ventures), 
as in effect on the date of the enactment of this Act, may bring a 
private right of action in any court of appropriate jurisdiction for 
rescission and restitution, as well as for all damages and maybe 
awarded injunctive relief against a violation or threatened violation 
of this Act or such section. The franchisee shall also be entitled to 
recover its costs of litigation and reasonable attorney's fees and 
expert witness fees, against any entity or person found to be liable 
for such violation.
    (b) Liability.--Every person who directly or indirectly controls a 
person liable under subsection (a), every partner in a firm so liable, 
every principal executive officer or director of a corporation so 
liable, every person occupying a similar status or performing similar 
functions and every employee of a person so liable who materially aids 
in the act or transaction constituting the violation is also liable 
jointly and severally with and to the same extent as such person, 
unless the person who would otherwise be liable hereunder had no 
knowledge of or reasonable grounds to know of the existence of the 
facts by reason of which the liability is alleged to exist.
    (c) Statute of Limitations.--No action may be commenced pursuant to 
this section or this Act more than the later of--
            (1) 5 years after the date on which the violation occurs; 
        or
            (2) 3 years after the date on which the violation is 
        discovered or should have been discovered through exercise of 
        reasonable diligence.
    (d) Venue.--A franchisee may commence a civil action to enforce any 
provision of this Act within the jurisdiction wherein the applicable 
franchisee is a resident or where the applicable business is located.
    (e) Cumulative Right.--The private rights provided for in this 
section are in addition to and not in lieu of other rights or remedies 
created by Federal or State law.

SEC. 12. SCOPE AND APPLICABILITY.

    (a) Prospective Application.--Except as provided in subsection (b), 
the requirements of this Act shall apply to franchise agreements 
entered into, amended, exchanged, transferred, assigned, or renewed 
after the date of enactment of this Act.
    (b) Delayed Effect.--The requirements of section 3 of this Act 
shall take effect 90 days after the date of enactment of this Act and 
shall apply only to actions, practices, disclosures, and statements 
occurring on or after such date.

SEC. 13. DEFINITIONS.

    For purposes of this Act, the following definitions apply:
            (1) The term ``affiliate'' has the meaning given the term 
        ``affiliated person'' in section 436.1(b) of title 16 of the 
        Code of Federal Regulations as in effect on July 1, 2007.
            (2) The term ``disclosure document'' means either the 
        disclosure statement required by the Federal Trade Commission 
        in Trade Regulation Rule 436 (16 C.F.R. 436) as amended from 
        time to time, or any offering format allowed or required by 
        State or local law.
            (3) The term ``franchise'' has the meaning given such term 
        in section 436.1(h) of title 16 of the Code of Federal 
        Regulations as in effect on July 1, 2007, but does not include 
        any contract otherwise regulated by the Federal Petroleum 
        Marketing Practices Act (15 U.S.C. 2801 et seq.) except as to 
        franchise relationships that do not involve the sale of 
        petroleum products.
            (4) The term ``franchise seller'' has the meaning given 
        such term in section 436.1(j) of title 16 of the Code of 
        Federal Regulations as in effect on July 1, 2007.
            (5) The term ``franchisee'' has the meaning given such term 
        in section 436.1(i) of title 16 of the Code of Federal 
        Regulations as in effect on July 1, 2007.
            (6) The term ``franchisor'' has the meaning given such term 
        in section 436.1(k) of title 16 of the Code of Federal 
        Regulations as in effect on July 1, 2007.
            (7) The terms ``material'' and ``material fact'' include--
                    (A) any fact, circumstance, or set of conditions 
                which a reasonable franchisee or a reasonable 
                prospective franchisee would consider important in 
                making a significant decision relating to entering 
                into, remaining in, or abandoning a franchise 
                relationship; and
                    (B) any fact, circumstance, or set of conditions 
                which has, or may have, any significant financial 
                impact on a franchisor, franchisee, or a prospective 
                franchisee.
            (8) The term ``offer'' or ``offering'' means any effort to 
        offer or to dispose of, or solicitation of an offer to buy, a 
        franchise or interest in a franchise for value.
            (9) The term ``outlet'' means a point of sale, temporary or 
        permanent, fixed or mobile, from which goods or services are 
        offered for sale.
            (10) The term ``person'' means either an individual or any 
        other legal or commercial entity.
            (11) The term ``State'' means a State, the District of 
        Columbia, and any territory or possession of the United States.
            (12) The term ``subfranchise'' means a contract or an 
        agreement by which a person pays a franchisor for the right to 
        sell, negotiate the sale, or provide service franchises.
            (13) The term ``subfranchisor'' means a person who is 
        granted a subfranchise.
            (14) The term ``trade secret'' means information, including 
        a formula, pattern, compilation, program, device, method, 
        technique, or process, that--
                    (A) derives independent economic value, actual or 
                potential, from not being generally known to, and not 
                being readily ascertainable by proper means by, other 
                persons who can obtain economic value from its 
                disclosure or use; and
                    (B) is the subject of efforts that are reasonable 
                under the circumstances to maintain its secrecy.
            (15) The terms ``nonrenewal'' and ``nonrenew'' mean that 
        the franchisor fails or refuses to extend the franchisor-
        franchisee relationship at the end of the existing term of the 
        franchise agreement, irrespective of whether the franchise 
        agreement contains any contractual right to obtain a renewal 
        term. Allowing a franchise agreement with no renewal term to 
        expire shall be considered to be a ``nonrenewal'' for purposes 
        of this Act.

SEC. 14. SEVERABILITY.

    If any provision or clause of this section or any application of 
this section to any person or circumstances is held invalid, such 
invalidity shall not affect other provisions or applications of the 
section which can be given effect without the invalid provision or 
application, and to this end the provisions of this section are 
declared to be severable.

SEC. 15. STATE ATTORNEYS GENERAL.

    (a) Civil Action.--Whenever an attorney general (or similar 
enforcement officer of a State, however denominated, hereinafter 
``attorney general'') of any State has reason to believe that the 
interests of the residents of that State have been or are being 
threatened or adversely affected because any person has engaged or is 
engaging in a pattern or practice which violates any provision of this 
Act, the State, as parens patriae, may bring a civil action on behalf 
of its residents in an appropriate State court or district court of the 
United States to enjoin such violations, to obtain damages, restitution 
or other compensation on behalf of residents of such State or to obtain 
such further and other relief as the court may deem appropriate.
    (b) Preservation of Power.--For purposes of bringing any civil 
action under subsection (a), nothing in this Act shall prevent an 
attorney general from exercising the powers conferred on the attorney 
general by the laws of such State to conduct investigations or to 
administer oaths or affirmations or to compel the attendance of 
witnesses or the production of documentary and other evidence.
    (c) Venue.--Any civil action brought under subsection (a) in a 
district court of the United States may be brought in the district in 
which the defendant is found, is an inhabitant, or transacts business, 
or wherever venue is proper under section 1391 of title 28, United 
States Code. Process in such action may be served in any district in 
which the defendant is an inhabitant or in which the defendant may be 
found.
    (d) No Preemption.--Nothing contained in this section shall 
prohibit an authorized State official from proceeding in State court on 
the basis of an alleged violation of any civil or criminal statute of 
such State.
                                 <all>