The Broad Scope of Franchise Laws: Traps for the Distribution Contract Drafter
The number of states enacting laws restricting a franchisor’s sale or termination of franchises has increased over the years. An understanding of the existing laws is important for every supplier and distributor of goods and services, because such statutes have been held to apply to far more than the traditional fast food hamburger operation. In some states, for example, if a supplier of a branded product merely requires a distributor to maintain a 90-day inventory and participate in a promotional program, a “franchise” under the applicable statutory definition may exist, with disclosure and registration requirements imposed on the supplier and extensive rights granted by law to the distributor. The supplier’s failure to comply can lead to serious penalties.