Prohibited Franchise Practices by Franchisors in NJ
In New Jersey, franchisors are prohibited from unreasonably interfering with a franchisor’s business. Specifically:
- A franchisor cannot require a franchisee to release the franchisor or any other person from violations and/or liability under the FPA before entering into a franchise agreement.
- A franchisor may not prohibit franchisees from associating with one another for a lawful purpose.
- A franchisor cannot require or prohibit changes in a franchisee’s management unless it is for a good reason and is put in writing.
- A franchisor may not “restrict the sale, transfer, issuance of stock to employees of the franchisee or to an heir of the estate of the principal owner, as long as basic financial requirements of the franchisor are complied with, and provided any such sale, transfer or issuance does not result in an actual or de facto sale of the franchise.”
- A franchisor may not impose performance standards that are commercially unreasonable for a franchisee.
- A franchisor may not include any terms or conditions which directly or indirectly violate the FPA “in any lease or other agreement ancillary or collateral to a franchise.”
What are the Legal Consequences of Violating the NJ Franchise Practices Act?
If a franchisor violates the FPA, the law gives the franchisee remedies, including money damages, court costs, attorneys’ fees, and injunctive relief.
Money damages include the economic loss to the value of the franchisee’s business at the time of the unlawful termination of the practice.
Punitive Damages Exist if the Conduct of the Franchisor is Highly Offensive
Punitive damages can be awarded to the franchisee when a franchise agreement is sought to be terminated by the franchisor and the act of the franchisor was motivated by a purposeful or a wanton disregard for the rights of the franchisee.
Attorneys’ Fees and Court Costs
A franchisee may recover attorneys’ fees for all successful claims. Unsuccessful claims do not result in an entitlement to attorney’s fees.
You may call Mr. Niemann at (732)-863-9900 or email him at fniemann@hnlawfirm.com to schedule a low-cost and convenient consultation about your NJ franchise matter.
Out-of-State Franchisors
A frequent issue before the Courts of New Jersey involves whether an out-of-state franchisor can force a NJ franchise to defend itself in the State of New Jersey for franchisers to bring litigation outside of New Jersey in far off jurisdictions like California (California being as far as possible in the continental United States from New Jersey). Many franchisee agreements recite that any and all disputes between the franchisor and franchisee must be litigated in the franchisee’s home state.
One factor the laws of New Jersey look at in deciding the venue of litigation is if one party “is far less financially capable of conducting this litigation outside this district.”
Forum selection clauses in franchise agreements are presumptively invalid in NJ and should not be enforced unless the franchisor can satisfy the burden of proving that such a clause was not imposed on the franchisee unfairly because of its superior bargaining position.
We all know that forum selection clauses are often the product of unequal bargaining power, a hallmark of the franchise relationship. It’s like McDonald’s vs. Pop’s One Stand Burgers.
New Jersey wants to level the playing field for New Jersey franchisees and prevent their exploitation by franchisors with superior economic resources.
One of the main purposes of the New Jersey Franchise Practices Act is to afford New Jersey franchisees venue in New Jersey to litigate their claims against franchisors in other states.
Fredrick P. Niemann Esq.
The Franchise Act attempts to remedy the effects of unequal bargaining power by prohibiting the inclusion in the franchise agreement provisions that relieve franchisors of liability under the Act or unfairly prejudice the franchisee in the operation of its franchise. The legislature has sought to prevent franchisors from acquiring the business of a successful franchisee by preventing the termination of franchisees’ rights expressed at the legislative hearing. The Legislature established a cause of action in the courts of this state for damages, injunctive relief, and counsel fees.
Please call Mr. Niemann at (732)-863-9900 or email him at fniemann@hnlawfirm.com to schedule a low-cost, convenient consultation regarding your NJ franchise matter.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Franchise Law Attorney