Does the Massachusetts Fair Franchising Act Have Legs?
by Ed Teixeira
Senate Bill 01843 introduced in Massachusetts by legislator Brian A.
Joyce has significant implications for franchisors especially in light of
the Coverall decision. Learn about this legislation and whether it has a
chance to pass.
The Iowa Franchise Act, passed in 1992, was intended to provide Iowa
franchisees with a protection against certain actions by franchisors. There
were specific provisions of the Act that franchisors considered extremely
onerous. Perhaps the most objectionable provision dealt with the issue of
encroachment. An interesting component of the encroachment rule
directed that the amount of compensation owed an aggrieved franchisee as a
result of encroachment would be determined by one of three methods that
could be chosen by the franchisee. One of the methods included a panel,
“comprised of an equal number of members selected by the franchisee and the
franchisor, and one additional member to be selected unanimously by the
members selected by the franchisee and the franchisor.”
The Iowa Franchise act was to be retroactive to all prior franchise
contracts. In 1992, McDonald's Corporation (McDonald's) and Holiday Inns
Franchising, Inc. and Holiday Inns, Inc. (Holiday Inns), filed separate
actions for declaratory judgment in federal court claiming that the Act
violated provisions of the contract clause contained in the both the United
States and Iowa constitutions. The District Court for the Southern District
of Iowa agreed with McDonald's and Holiday Inns and granted summary judgment
in their favor.
The Act came under heavy fire from franchisors and related interest
groups and in 1996 the Act was amended. In terms of franchise regulation the
Iowa Franchise Act is considered by some to represent a watershed in terms
of State franchise laws and the response it generated.
Now, the Massachusetts legislature is considering similar legislation
introduced by State Senator Brian A. Joyce. Known as the Fair Franchising
Act, Senate Bill 01843 seeks to further regulate franchising in
Some of the provisions include:
- 90 days notice for termination, except in the
instance of abandonment or conviction of a felony
- Non renewal of a franchise agreement by a
franchisor requires 90 days written notice.
- A franchisor that opens a new location or outlet
that adversely impacts the gross sales of an existing
franchisee location shall be liable to the franchisee for
monetary damages unless 1. The franchisee was offered the
location first or 2. The franchisee was non-compliant with
their franchise agreement. This provision is reminiscent of
the Iowa Franchise Act including the method to remedy the
A number of franchise industry experts believe that the Massachusetts law
has a good chance of passage.
A report on the hearing was written by Blue Mau Mau and can be read here.
The Coverall Case
A lawsuit brought by a Coverall franchisee in Massachusetts claimed that
the franchisees were de facto employees of Coverall entitled to minimum wage
and employee insurance. A ruling in favor of Coverall franchisees has been
made by the court. In response to the Coverall ruling a new bill, would
exempt franchisors from Massachusetts labor laws that other industries must
follow. In any case, the Coverall ruling could be modified or overturned,
however, it’s yet another shot across the bow of franchisors.
Although these two issues could be split in favor of both franchisors and
franchisees, a Fair Franchising Act in Massachusetts could have impact on
the franchise industry and future State franchise regulations given the
visibility of Massachusetts from an academic and political standpoint. Time
will tell how this story plays out.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at