Posted on Aug 05, 2011
Don’t Forget: Compliance Beyond Federal and State Laws
While franchising and the franchisee relationship have their own unique sets of complexities, the legal issues facing both franchisors and franchisees go well beyond just the federal and state laws for franchise opportunities.
In Item 1 of the Franchise Disclosure Document (FDD), one of the more important franchise forms, franchisors are required to disclose, “[i]n general terms, any laws or regulations specific to the industry in which the franchise business operates.” The typical “any laws or regulations” disclosure typically begins something like: “In addition to laws applicable to businesses generally that operate in your location, you must . . .” and continues on from there. This introductory phrase is usually intended to cover things like employment laws, advertising laws, and consumer protection statutes that apply regardless of the nature of the franchise concept.
Without discounting the importance of compliance with these types of laws, it is the continuation of this disclosure that is the focus of this article. Depending on the nature of the franchise, there are numerous types and categories of laws and regulations that could potential apply to franchise operations. Franchisors need to be aware of these laws so that they can be adequately disclosed in the FDD, and franchisees (active and prospective) need to be aware as well so that they do not run afoul in operating their franchised business. Depending on the nature of the franchise, the following are some industry-specific laws and regulations of which franchisors and franchisees may need to be aware:
- Food and menu labeling laws
- Elder care laws and regulations
- Child care laws and regulations
- Health club laws
- Laws and regulations governing hotels and accommodations
- Many others, as they may vary from state to state
In addition, licensing requirements in certain industries (such as nursing and home improvement contracting) can make or break a franchise opportunity for a prospective franchisee.
Generally speaking, franchisors can provide franchisees with as much or as little assistance with these issues as they choose. However, franchisors ought to be aware of the laws that apply to the franchises they are selling, and if they have this information on hand, there is little reason not to share it with franchisees -- perhaps with a caveat that franchisees should perform their own independent research to confirm the franchisor’s understanding.
Finally, a point of issue specifically for potential franchisors: Certain industries and professions may be governed by laws and regulations that effectively prohibit the sale of franchises. For example, some states have in place fee-sharing rules for doctors and architects that may effectively prohibit would-be franchisees from paying royalties. For business owners considering franchising in these types of regulated industries, a national (or at least regional) survey may be required to determine whether or not the business is a franchiseable concept at all.
Jeff Fabian is the owner of Fabian, LLC, a boutique intellectual property and business law firm serving new and established franchisors and franchisees. Visit www.thefranchisecafe.com or www.fabianlegal.com for more information, or contact the firm directly at 410.908.0883 or firstname.lastname@example.org. You can also follow Jeff on Twitter @jsfabian.
This article is provided for informational purposes only, and does not constitute legal advice. Always consult an attorney before taking any action that may affect your legal rights or liabilities.
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