Franchise Relationship/Termination Law Proposed in Vermont

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

Legislators in Vermont have proposed a generally-applicable law regulating the relationships between franchisors and franchisees.

Under the proposal, a franchisor shall not terminate a franchise prior to the expiration of its term except for good cause. "Good cause" is defined in the measure as "cause based upon a legitimate business reason" and includes the failure of the franchisee to comply with any material lawful requirement of the franchise agreement, provided that the termination by the franchisor is not arbitrary or capricious.

The franchisee would bear the burden of proof of showing that the actions of the franchisor were arbitrary or capricious, according to the bill.

The proposal includes provisions regulating the transfer and sale of franchises, encroachment, and sources of goods or services. In addition, it would impose a duty of good faith on parties to a franchise agreement and would prohibit restrictions on a franchisee’s right to associate with other franchisees.

The bill’s definition of "franchise" is similar to many generally applicable statutes. Under the proposal, a "franchise" is:

(1) An oral or written agreement, either express or implied, which:(a) grants the right to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by the franchisor; (b) requires payment of a franchise fee to a franchisor or its affiliate; and (c) allows the franchise business to be substantially associated with a trademark, service mark, trade name, logotype, advertisement, or other commercial symbol of or designating the franchisor; or

(2) A master franchise.

Excepted from the definition of "franchise," among other things, is an agreement regulated under the Vermont special industry laws pertaining to machinery dealerships, motor vehicle manufacturers, service station operators, oil companies, or alcoholic beverages.

House Bill No. 6934 was introduced January 30, 2012, and was referred to the Commerce and Economic Development Committee January 31, 2012.