Underneath the Golden Boy - Robson Hall Faculty of Law

Franchise Law Consultation Paper 2007 287
As well, several U.S. states have enacted laws addressing matters such as the
termination, renewal and transfer of the franchise, territory encroachment, and
requirements for the purchase of goods and services from designated sources. 219
Iowa’s legislation is recognized as being the most comprehensive, and among
other things, prohibits franchisors from terminating or refusing to renew a
franchise without good cause (or, in the case of renewal, unless certain
circumstances exist, such as the franchisor’s withdrawal from that market). It
also prohibits franchisors from requiring franchisees to purchase goods or services
exclusively from the franchisor or designated sources when comparable goods
and supplies are available from other sources. Franchisees also have a cause of
action for damages if a franchisor allows encroachment that adversely affects the
franchisee’s sales. 220 In Australia, the Franchising Code Review Committee
recently recommended that consideration be given to prohibiting unilateral
changes by franchisors and removing or modifying the right of a franchisor to
unilaterally terminate a franchise agreement. The Committee added that if the
right is maintained, adequate franchisee compensation should be required. 221
The ability of the franchisor to impose unilateral changes to business
operations was also identified as a concern by the American Franchisee
Association, which has advocated for federal franchise relationship provisions. 222
[A] prospective franchisee may do his or her due diligence, investigate the system, talk to
franchisees, and be comfortable in signing the current franchise agreement. ...[but] some
of the unilateral changes to franchise relationships involve issues that no franchisee could
have anticipated upon the initial signing of the contract. In other words… a franchisee
may be bound by changes to the relationship that, had they known, they never would
have signed the agreement in the first place. 223
(date accessed: May 12, 2007).
219
Ibid. at 43-44.
220
Ibid. at 44; Iowa Code §§ 523H.1-523H.17.
221
The Australian Government has indicated that this recommendation will be addressed in the
context of amendments to the Trade Practices Act, 1974: Hon. F. Bailey, Minister of Industry,
Tourism and Resources, Reform of Franchising Code of Conduct (Media Release, February 6,
2007), online:
(date accessed: May 12, 2007).
222
The American Franchisee Association proposed a Model Responsible Franchise Practices Act
in 1996; see The American Franchisee Association, Who Are We, online:
(date accessed: May 12, 2007). As well, the
American Association of Franchisees and Dealers developed voluntary standards for fair
franchising, which would enable franchisors to display a “Fair Franchising Seal”: see The
American Association of Franchisees and Dealers, Fair Franchising Standards (revised August
2002), online: (date accessed: May 12, 2007).
223
U.S. General Accounting Office, supra note 9 at 70-71.