Most states lack key protections for franchisees

Our new, comprehensive guide to state franchising laws finds that 32 states do not have laws that protect small-business franchisees from abusive franchisor practices. The analysis of franchise laws, available here, allows current and potential franchisees to better understand franchise-specific legal protections, which are too scarce.

See the state-by-state guide:  

To spur reform, We Are Main St. is reaching out to every member of the legislatures in 49 states, calling on them to establish franchisee-specific protections where there are none and strengthen laws where they exist. Working with franchisees, the group helped push through the nation’s strongest pro-franchisee legislation in California last year and is not contacting lawmakers there. Hawaii, Minnesota and Pennsylvania are currently considering legislation to strengthen franchisee rights.

“There are unique risks inherent in franchising because of  the profound imbalance of power between franchisors—often large, multinational companies like McDonald’s—and small-business franchise owners,” said Joan Moriarty, Director of We Are Main St. “Hardworking franchisees should have the necessary, common-sense protections that create an even playing field. These changes promote stability and prosperity for small business owners and the people they employ.”

Previously, our research uncovered evidence of widespread abuses and instability in the franchise system that is exacerbated by the lack of legal protections. A majority of franchisees experience termination or nonrenewal threats, according to a recent national survey of franchisees, and most report having had their franchisors require investments that increase costs but do not increase sales. A 2015 study found that nearly one in six Small Business Administration loans made to franchisees from 1991 to 2010 had failed.

The 2015 California law provides some of the strongest franchisee protections in the country and could serve as a model for franchise legislation in other states. The recently enacted California law has provisions essential to making franchising fairer, such as protecting franchisees’ ability to pass their business on to their heirs or sell it to qualified buyers, and requiring franchisors to provide compensation to franchisees who are terminated or not renewed.