A bill introduced this month in the Florida Legislature threatens to fundamentally shift the balance of franchise relationships in the Sunshine State. SB 750, deceptively titled “Protect Florida Small Business Act,” represents the most expansive, invasive and burdensome franchise relationship law ever proposed in the United States, if not the world. Although it contains numerous provisions harmful to franchisors, franchisees and the public alike, the Act overwhelmingly subverts a franchisor’s ability to protect its brand and goodwill.
Barring a few narrow exceptions, the Act would prevent a franchisor from terminating a franchisee except for good cause, which the Act vaguely defines as the “failure of the franchisee to substantially comply with the reasonable and material requirements imposed upon the franchisee by the franchise agreement.” Likewise, a franchisor can only decline to renew a franchisee if it has good cause for termination or completely withdraws from the geographic market. Further, upon termination or non-renewal, a franchisor would be forced to purchase the “goodwill” of the franchise business at fair market value, regardless of whether the termination or non-renewal was justified.
The Act contains a litany of ambiguous prohibitions that are deemed unfair or deceptive acts or practices. This includes: (1) coercing or attempting to compel a franchisee to enter into any agreement by threatening to cancel the franchise; (2) using any false or misleading advertisement in connection with franchising its business; (3) discriminating in price, programs or terms of sale offered to a franchisee, or give any franchisee an economic, business, or competitive advantage not offered to other franchisees; (4) obtaining any money or other consideration from a supplier or another person on account of or in relation to transactions with the franchisee without prior written disclosure; (5) competing with a franchisee within a franchisee’s “exclusive territory” or otherwise grant a franchise to another to be located within the “exclusive territory;” and (6) imposing on a franchisee “any unreasonable standard of conduct.”
The penalties imposed on franchisors for violations of the Act are equally outlandish. A franchisee that shows a franchisor violated any part of the Act “shall” receive “all money invested in the franchise and all of the franchise business’s losses and other damages incurred while running the franchise business” plus attorneys’ fees. The Act further authorizes punitive damages for “malicious” acts and threatens franchisors with jail time by making willful or intentional violations a second degree misdemeanor. Franchise agreements that violate the Act are deemed void.
It is not clear whether the Act applies to franchise agreements that predate its effective date. On the one hand, the Act states that it applies to any “franchise entered into, renewed, amended, or revised” after the Act’s effective date. On the other hand, the Act also applies to “any written or oral agreement between a franchisor and franchisee,” regardless of when the parties executed the agreement, and to “any existing franchise of an indefinite duration which may be terminated by the franchisee or franchisor without cause.” Such patent ambiguities create extreme uncertainty regarding the validity of current franchise agreements and will undoubtedly spawn a host of costly litigation.
The Act was introduced by Senator Jack Latvala (R-Clearwater) and Representative Jason Brodeur (R-Sanford).
For a more detailed analysis, please see our client alert here.