Two state legislators from Florida recently introduced a bill entitled “Protect Florida Small Business Act” (the “Act”), which could actually have the exact opposite effect on franchise relationships in Florida. While many states regulate the franchisor-franchisee relationship through franchise registration and restrictions on termination and non-renewal rights, this proposed legislation would implement some of the most extensive regulations on the franchise relationship in the United States.

APPLICABILITY

First, the Act is not explicitly clear about what agreements and parties it applies to. The Act states that it applies to all Florida residents, those domiciled in Florida, and those whose franchised business is, has been, or will be operated in Florida. However, the Act states that it also applies to any franchisor who “engages in an agreement within Florida.” This means that it may apply to all franchisors headquartered in, or operating out of, Florida.

Additionally, the Act states that it applies to any franchise entered into, renewed, amended or revised after the Act is instituted but also provides that it applies to any written or oral agreement between the parties as well as any existing franchise of infinite duration. These ambiguities leave franchisors in the dark and make the Act ripe for controversy.

TERMINATION AND NON-RENEWAL

Second, the Act prohibits a franchisor from terminating a franchise agreement except for good cause. Good cause is defined as the failure of a franchisee to substantially comply with the reasonable and material requirements of the franchise agreement. Unfortunately, the Act does not provide any guidance as to what would be considered a “substantial” noncompliance or a “reasonable and material” provision, which could result in an increase in frivolous lawsuits.

Further, the Act requires that a franchisor give a franchisee no less than 90 days’ notice of termination and at least a 60-day cure period to cure almost all defaults. This is longer than nearly any cure period imposed by contract or state law. As with other state franchise statutes, there are some exceptions to this 60-day cure period due to franchisee’s abandonment, bankruptcy, failure to comply with any law or regulation, felony conviction and certain other suits or actions against the entity.

Under the Act, a franchisor may not refuse to renew a franchise agreement unless the franchisor provides the franchisee with at least 180 days’ notice. Further, termination of the franchise must be proper under the Act or the franchisor must be completely withdrawing from distributing its products or services in the geographic market. The Act does not provide any definition as to what would constitute “completely withdrawing” from the region, leaving more room for interpretation and litigation. It also does not contemplate any alternative channels of distribution for products and services.

Additionally, the franchisor has to waive its right to enforce any non-competition covenant against a franchisee if it refuses to renew the franchise agreement. Furthermore, if a franchisee receives a notice of non-renewal, it may request an arbitration during that 180-day notice period for a determination as to whether such non-renewal is proper. The franchise agreement remains in effect until the determination is made. This could stall the expiration of a franchise agreement and future re-sales in that geographic region if the arbitration takes additional time.

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