New Jersey Expands Coverage of Franchise Practices Act

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide, and John W. Arden.

Legislation to extend protections of the New Jersey Franchise Practices Act to wholesale distribution businesses was signed into law on January 16.

The state expanded the coverage of its franchise relationship/termination law by revising the concept of “place of business” within the statutory definition of “franchise.”

Amendments contained in Assembly Bill No. 2491 (Chapter No. 235) were a reaction to the legislature’s finding that “the courts have in some cases more narrowly construed the Franchise Practices Act than was intended by the Legislature.”

Specifically, the legislation changed the previous “franchise” definition, which covered distribution businesses that required customers to come to its “place of business” to buy goods but did not cover distribution businesses that incurred the extra burden of going to its customers to make sales and deliver products.

The previous version defined “place of business” as “a fixed geographical location at which the franchisee displays for sale and sells the franchisor’s goods or offers for sale and sells the franchisor’s services. Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle.”

The enactment adds the following clause (in italics) to the last sentence of the definition:

“Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle, except that with respect to persons who do not make a majority of their sales directly to consumers, `place of business’ means a fixed geographical location at which the franchisee displays for sale and sells the franchisor’s goods or offers for sale and sells the franchisor’s services, or an office or a warehouse from which franchisee personnel visit or call upon customers or from which the franchisor’s goods are delivered to customers.”

The amendment was effective immediately. Text of the amending law appears here on the website of the New Jersey Legislature.