SENATE, No. 142

SECTION 1. Chapter 93 of the General Laws, as appearing in the 2004 Official Edition, is hereby amended by inserting at the end thereof the following new section:--

REGULATION OF FRANCHISE AGREEMENTS

Section 115. Franchise Agreements; Termination for Good Cause; Notice Requirements; Prohibited Conduct; Terms

(a)    No franchisor shall, directly or through any officer, agent or employee, terminate, cancel or fail to renew a franchise, except for good cause shown which shall include, but not be limited to, the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement except such obligations under subsection (d) of this section for the reasons stated in subsection (c) of this section.  The franchisor shall give the franchisee written notice of such termination, cancellation, or intent not to renew at least sixty days in advance of such termination, cancellation or failure to renew with the cause stated thereon; provided in the event the franchisor elects not to renew a franchise pursuant to subsection (c) of this section, the franchisor shall give the franchisee written notice of such intent not renew at least six months prior to the expiration of the current franchise agreement.  The provisions of this section shall not apply (1) where the alleged grounds were voluntary abandonment by the franchisee of the franchise relationship, in which event, such notice may be given fifteen days in advance of such termination, cancellation, or failure to renew, or (2) where the alleged grounds are the conviction of the franchisee in a court of competent jurisdiction of an offense punishable by a term of imprisonment in excess of one year and directly related to the business conducted pursuant to the franchise, in which event, such notice may be given at any time following such conviction and shall be effective upon such delivery and written receipt of such notice, subject to the requirements of the subdivision (9) of subsection (e) of this section.

(b)   Upon termination of any franchise for whatever cause or reason, except voluntary relinquishment or abandonment of the franchise by the franchisee, the franchisor shall fairly compensate the franchisee or the franchisee’s estate for the fair market value, at the time of termination of the franchise, of the franchisee’s inventory, supplies, equipment and furnishing purchased by the franchisee from the franchisor or its approved sources and good will, if any, exclusive of personalized items which have not value to the franchisor and inventory, supplies, equipment and furnishings not reasonable required in the conduct of the franchise business; provided that compensation need not be made to franchisee of good will if (1) the franchisee has been given one year’s notice of non-renewal, and (2) the franchisor agrees in writing not to enforce any covenant which restrains the franchisee from competing with the franchisor, and provided further, that a franchisor may offset against amounts owed to a franchisee under this subsection any amount owed by such franchisee to franchisor.

(c)    A franchisor may elect not to renew a franchise which involves the lease by the franchisor to the franchisee of real property and improvement, in the event the franchisor (1) sells or leases such real property and improvements to other than a subsidiary or affiliate of the franchisor for any use; or (2) sells or leases such real property to subsidiary or affiliate of the franchisor, except such subsidiary or affiliate shall not use such real property and improvements to a use not covered by the franchise agreement; or (3) converts such real property from a person not the franchisee and such lease from such person is terminated or not renewed.

(d)   No franchisor shall terminate, cancel or fail to renew a franchise for the failure of refusal of the franchisee to do any of the following: (1) refusal to take part in promotional campaigns of the franchisor’s products; (2) failure to meet sales quotas suggested by the franchisor; (3) refusal to sell any products at a price suggested by the franchisor or supplier; (4) refusal to keep the premises open and operating during those hours which are documented by the franchisee to be unprofitable to the franchisee or to preclude the franchisee from establishing his own hours of operation beyond the hour of 10:00 p.m. and prior to 6:00 a.m.; or (5) refusal to give the franchisor or supplier financial records of the operation of the franchise which are not related or unnecessary to the franchisee’s obligations under the franchise agreement.  Subdivisions (1) to (5), inclusive, shall not be deemed material and reasonable obligations, substantial failure to comply with franchise terms, or good cause under subsection (a) of this section.

(e)    No franchisor, directly or indirectly, through any officer, agent, or employee, shall do any of the following: (1) prohibit, directly or indirectly, the right of free association among franchisees for any lawful purpose; (2) prohibit the transfer by will of any franchise and the rights of any franchisee; (3) require of prohibit any change in management of any franchise unless such requirement or prohibition of such change shall be for good cause, which cause shall be stated in writing by the franchisor; (4) impose unreasonable standards of performance upon a franchisee; (5) fail to deal in good faith with a franchisee; (6) sell, rent or offer to sell to a franchisee any product or service for more than a fair and reasonable price; (7) impose on a franchise by contract, rule or regulation, whether written or oral, any standard of conduct unless the franchisor, his agents or representatives sustain the burden of proving such to be reasonable and necessary; (8) discrimination between franchises in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing, unless (A) any such type of discrimination between franchisees would be necessary to allow a particular franchisee to fairly meet competition in the open market or (B) to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is reasonable, is based on franchises granted at materially different times and such discrimination is reasonably related to such difference in time or on other proper and justifiable distinctions, an is not arbitrary.  Nothing shall be construed under this subsection, however, as granting to an franchisor any right which may be limited by any other state or federal statutes; (9) notify the franchisee of a claimed breach of franchise agreement for good cause later than one hundred eighty days from the date good cause arises or one hundred eighty days after the franchisor knew or in the exercise of reasonable care should have known of said claimed good cause.

(f)     Any franchisee or franchisor, upon request, shall have the right to have the question of good cause submitted to arbitration in accordance with the rules of the American Arbitration Association.  Any franchisee or franchisor, upon the rendering of a decision in arbitration, shall have the right to apply to the superior court in the county wherein such franchisee or franchisor is doing the business or resides for confirmation, modification, correction or vacation of any arbitration decision.

(g)    Every franchisor shall protect and save harmless its franchisee from financial loss and expense, including legal fees and costs, if any, arising out of any claim, demand, suit or judgment by reason of defect in merchandise or methods or procedures prescribed by franchisor and performed by such franchisee, except for alleged negligence or willful misconduct of such franchisee.

(h)    Every Franchisor shall reimburse its franchisee at the prevailing retail price for any services rendered or party supplied by such franchisee in satisfaction of any warranty issued by such franchisor, and no franchisor shall restrict a franchisee from rendering services or providing parts in accordance with standards of good workmanship in satisfaction of any such warranty.

SECTION 2.  For the purposes of this section, the following words shall have the following meanings:

            “Franchise” shall mean a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (a) a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services, under a marketing plan or system prescribed or suggested in substantial part by a franchisor; and (b) the operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate. 

            “Franchisee” shall mean an individual to who a franchise is granted.

            “Franchisor” shall mean an individual, corporation, partnership, joint venture, association, joint stock company, trust, or unincorporated organization that grants a franchise.