PRINTER'S NO. 1349
No. 1214 Session of 1981
INTRODUCED BY ALDEN AND PERZEL, APRIL 21, 1981
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, APRIL 21, 1981
AN ACT
1 Relating to certain franchise practices and providing penalties.
2 TABLE OF CONTENTS
3 Section 1. Short title.
4 Section 2. Legislative findings.
5 Section 3. Definitions.
6 Section 4. Application of act.
7 Section 5. Termination of franchise.
8 Section 6. Transfer of franchise.
9 Section 7. Prohibited practices.
10 Section 8. Application of act to prior grants of
11 franchises.
12 Section 9. Action against franchisor.
13 Section 10. Damages; injunction and costs.
14 Section 11. Limitation of liability of franchisor.
15 Section 12. Motor vehicle franchisor.
16 Section 13. Third party actions.
17 Section 14. Reimbursement for services in satisfaction of
1 warranty.
2 Section 15. Penalty.
3 Section 16. Effective date.
4 The General Assembly of the Commonwealth of Pennsylvania
5 hereby enacts as follows:
6 Section 1. Short title.
7 This act shall be known and may be cited as the "Franchise
8 Practices Act."
9 Section 2. Legislative findings.
10 The Legislature finds and declares that distribution and
11 sales through franchise arrangements in the State of
12 Pennsylvania vitally affects the general economy of the State,
13 the public interest and the public welfare. It is therefore
14 necessary in the public interest to define the relationship and
15 responsibilities of franchisors and franchisees in connection
16 with franchise arrangements.
17 Section 3. Definitions.
18 The following words and phrases when used in this act shall
19 have, unless the context clearly indicates otherwise, the
20 meanings given to them in this section:
21 "Franchise." A written arrangement for a definite or
22 indefinite period, in which a person grants to another person a
23 license to use a trade name, trade mark, service mark or related
24 characteristics, and in which there is a community of interest
25 in the marketing of goods or services at wholesale, retail, by
26 lease, agreement or otherwise.
27 "Franchisor." A person who grants a franchise to another
28 person.
29 "Person." A natural person, corporation, partnership, trust
30 or other entity and, in case of an entity, it shall include any
19810H1214B1349 - 2 -
1 other entity which has a majority interest in such entity or
2 effectively controls such other persons in active control of the
3 activities of each entity.
4 "Place of business." A fixed geographical location at which
5 the franchisee displays for sale and sells the franchisor's
6 goods or offers for sale and sells the franchisor's services.
7 Place of business shall not mean an office, a warehouse, a place
8 of storage, a residence or a vehicle.
9 "Sale, transfer or assignment." Any disposition of a
10 franchise or any interest therein, with or without
11 consideration, to include but not limited to bequest,
12 inheritance, gift, exchange, lease or license.
13 Section 4. Application of act.
14 This act applies only to a franchise, the performance of
15 which contemplates or requires the franchisee to establish or
16 maintain a place of business within the State of Pennsylvania,
17 where gross sales of products or services between the franchisor
18 and franchisee covered by such franchise shall have exceeded
19 $35,000 for the 12 months next preceding the institution of suit
20 pursuant to this act, and where more than 20% of the
21 franchisee's gross sales are intended to be or are derived from
22 such franchise.
23 Section 5. Termination of franchise.
24 (a) Notice.--It shall be a violation of this act for a
25 franchisor directly or indirectly through any officer, agent or
26 employee to terminate, cancel or fail to renew a franchise
27 without having first given written notice setting forth all the
28 reasons for such termination, cancellation or intent not to
29 renew to the franchise at least 60 days in advance of such
30 termination, cancellation or failure to renew, except:
19810H1214B1349 - 3 -
1 (1) where the alleged grounds are voluntary abandonment
2 by the franchisee of the franchise relationship in which
3 event the aforementioned written notice may be given l5 days
4 in advance of such termination, cancellation or failure to
5 renew; and
6 (2) where the alleged grounds are the conviction of the
7 franchisee in a court of competent jurisdiction of an
8 indictable offence directly related to the business conducted
9 pursuant to the franchise in which event the aforementioned
10 termination, cancellation or failure to renew may be
11 effective immediately upon the delivery and receipt of
12 written notice of same at any time following the
13 aforementioned conviction.
14 (b) Grounds.--It shall be a violation of this act for a
15 franchisor to terminate, cancel or fail to renew a franchise
16 without good cause. For the purposes of this act, good cause for
17 terminating, cancelling or failing to renew a franchise shall be
18 limited to failure by the franchisee to substantially comply
19 with those requirements imposed upon him by the franchise.
20 Section 6. Transfer of franchise.
21 (a) Notice.--It shall be a violation of this act for a
22 franchisee to transfer, assign or sell a franchise or interest
23 therein to another person unless the franchisee shall first
24 notify the franchisor of such intention by written notice
25 setting forth in the notice of intent the prospective
26 transferee's name, address, statement of financial qualification
27 and business experience during the previous five years.
28 (b) Decision.--The franchisor shall within 60 days after
29 receipt of such notice either approve in writing to the
30 franchisee such sale to proposed transferee or by written notice
19810H1214B1349 - 4 -
1 advise the franchisee of the unacceptability of the proposed
2 transferee setting forth material reasons relating to the
3 character, financial ability or business experience of the
4 proposed transferee. If the franchisor does not reply within the
5 specified 60 days, his approval is deemed granted.
6 (c) Compliance with franchise.--No such transfer, assignment
7 or sale hereunder shall be valid unless the transferee agrees in
8 writing to comply with all the requirements of the franchise
9 then in effect.
10 Section 7. Prohibited practices.
11 It shall be a violation of this act for a franchisor,
12 directly or indirectly through any officer, agent or employee,
13 to engage in any of the following practices:
14 (1) To require a franchisee at time of entering into a
15 franchise arrangement to assent to a release, assignment,
16 novation, waiver or estoppel which would relieve any person
17 from liability imposed by this act.
18 (2) To prohibit directly or indirectly the right of free
19 association among franchisees for any lawful purpose.
20 (3) To require or prohibit any change in management of
21 any franchise unless such requirement or prohibition of
22 change shall be good cause, which shall be stated in writing
23 by the franchisor.
24 (4) To restrict the sale of any equity or debenture
25 issue or the transfer of any securities of a franchise or in
26 any way prevent or attempt to prevent the transfer, sale or
27 issuance of shares of stock or debentures to employees,
28 personnel of the franchisee, or heir of the principal owner,
29 as long as basic financial requirements of the franchisor are
30 complied with, and provided any such sale, transfer or
19810H1214B1349 - 5 -
1 issuance does not have the effect of accomplishing a sale of
2 the franchise.
3 (5) To impose unreasonable standards of performance upon
4 a franchisee.
5 (6) To provide a term or condition in a lease or other
6 agreement ancillary or collateral to a franchise, which term
7 or condition directly or indirectly violates this act.
8 Section 8. Application of act to prior grants of franchises.
9 This act shall not apply to a franchise granted prior to the
10 effective date of this act. The renewal of a franchise or an
11 amendment to an existing franchise shall not be excluded from
12 the application of this act.
13 Section 9. Action against franchisor.
14 It shall be a defense for a franchisor, to an action brought
15 under this act by a franchisee, to show that said franchisee has
16 failed to substantially comply with the requirements imposed by
17 the franchise and other agreements ancillary or collateral
18 thereto.
19 Section 10. Damages; injunction and costs.
20 A franchisee may bring an action against its franchisor for
21 violation of this act in the Superior Court of the State of
22 Pennsylvania to recover damages sustained by reason of any
23 violation of this act and, where appropriate, shall be entitled
24 to injunctive relief. Such franchisee, if successful, shall also
25 be entitled to the cost of the action including, but not limited
26 to, reasonable attorney's fees.
27 Section 11. Limitation of liability of franchisor.
28 There shall be no liability on the part of, and no cause of
29 action other than as provided by this act shall arise against a
30 franchisor, its officers, agents or employees furnishing
19810H1214B1349 - 6 -
1 information as to reasons for termination, cancellation, intent
2 not to renew, failure to renew, unacceptability of a proposed
3 transferee, or relating to the character, financial ability or
4 business experience of a proposed transferee, or for statements
5 made or evidence submitted at any hearing or trial conducted in
6 connection therewith.
7 Section 12. Motor vehicle franchisor.
8 For the purposes of this act: "motor vehicle franchisor"
9 means a franchisor engaged in the business of manufacturing or
10 assemblying motor vehicles, who will, under normal business
11 conditions during the year, manufacture or assembly at least ten
12 new motor vehicles, and his motor vehicle distributors; "motor
13 vehicle franchisee" means every franchisee actively engaged in
14 the business of buying, selling or exchanging motor vehicles or
15 motorcycles and who has an established place of business.
16 Section 13. Third party actions.
17 (a) Indemnity.--Motor vehicle franchisor shall indemnify and
18 hold harmless their motor vehicles franchisees from any and all
19 claims, losses, damages and expenses, including attorney fees,
20 resulting from or related to complaints, claims or suits against
21 the motor vehicle franchisee by third parties concerning defects
22 or alleged defects in any of the merchandise or service systems,
23 procedures or methods of the motor vehicle franchisors which are
24 sold or performed by the motor vehicle franchisee.
25 (b) Nonliability to franchisee.--With regards to services
26 rendered by a motor vehicle franchisee, the motor vehicle
27 franchisor shall not be liable to the motor vehicle franchisee
28 by virtue of this section for any claims, losses, expenses or
29 damages arising as a result of negligence or willful malfeasance
30 by the motor vehicle franchisee. The motor vehicle franchisor
19810H1214B1349 - 7 -
1 shall be liable for damages arising from or in connection with
2 any services rendered by a motor vehicle franchisee in
3 accordance with any service system, procedure or method
4 suggested or required by the motor vehicle franchisor.
5 (c) Defects or transit damage.--The foregoing provisions for
6 indemnification shall specifically include, but without limiting
7 the generality of the foregoing, any defects or damages to
8 merchandise occurring in transit from the motor vehicle
9 franchisor to the motor vehicle franchisee in situations in
10 which the motor vehicle franchisor designated the carrier or
11 method of transportation.
12 Section 14. Reimbursement for services in satisfaction of
13 warranty.
14 A motor vehicle franchisor shall reimburse motor vehicle
15 franchisees who perform services or provide parts in
16 satisfaction of a warranty issued by the motor vehicle
17 franchisor:
18 (1) The motor vehicle franchisor shall reimburse each
19 motor vehicle franchisee for such services as are rendered
20 and for such parts as are supplied, in an amount equal to the
21 prevailing retail price charged by such motor vehicle for
22 such services and parts in circumstances where such services
23 are rendered or such parts supplied other than pursuant to
24 warranty: Provided, That such motor vehicle franchisee's
25 prevailing retail price is not unreasonable when compared
26 with that of the holders of motor vehicle franchises from the
27 same motor vehicle franchisor for identical merchandise or
28 services in the geographic area in which the motor vehicle
29 franchisee is engaged in business.
30 (2) The motor vehicle franchisor shall not by agreement,
19810H1214B1349 - 8 -
1 by restrictions upon reimbursement, or otherwise, restrict
2 the nature and extent of services to be rendered or parts to
3 be provided so that such restriction prevents services in a
4 good and workmanlike manner and providing parts which are
5 required in accordance with generally accepted standards.
6 Such a restriction shall constitute a prohibited practice
7 hereunder.
8 Section 15. Penalty.
9 A violation of this act shall be a misdemeanor of the third
10 degree.
11 Section 16. Effective date.
12 This act shall take effect in 60 days.
B20L12DGS/19810H1214B1349 - 9 -