A2682

An Act concerning hospitality franchises and supplementing P.L.1971, c.356 (C.56:10-1 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. For the purposes this act, a franchise, as defined in 16 C.F.R. 436 and 437, that is a hospitality franchise, shall be considered merchandise for the purposes of P.L.1960, c.39 (C.56:8-1 et seq.).

b. Notwithstanding any provision of section 4 of P.L.1971, c.356 (C.56:10-4) to the contrary, this act shall apply only to a hospitality franchise, the performance of which requires the franchisee to establish and maintain a place of business within the State of New Jersey, or where the franchisee owner, partner, member, investor, or guarantor is a resident of New Jersey and where more than 20 percent of the franchisee’s gross sales are intended to be or derived from that franchise.

c. For the purposes of this act, “hospitality franchise” means a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristic, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise, where the goods include any hotel, motel, inn, tourist camp, tourist cabin, tourist home, rooming house or similar establishment where sleeping accommodations are supplied for pay to transient or permanent guests.

2. It shall be a violation of the “Franchise Practices Act,” P.L.1971, c.356 (C.56:10-1 et seq.) for a hospitality franchisor or an entity owned or controlled by the franchisor or affiliated under common ownership by the franchisor to:

a. Impose or enforce any restriction on the owner, officers, or employees of the franchisee that limits their employment, ownership, or participation in the operation of any business or activity for more than six months duration after termination, cancellation, or non-renewal in a location outside the county in which the hospitality franchise is located;

b. Require or attempt to require a franchisee to relocate a hospitality franchise or to make any capital investment over $25,000 more than once every five years, unless the franchisor can demonstrate that the franchisee, in the ordinary course of business, will be able to recover the value of that investment over the remaining term of the franchise agreement;

c. Receive any rebate, commission, kickback, services, other consideration or anything of value from any vendor that sells goods or services to a franchisee of the hospitality franchisor unless the consideration is fully disclosed to the franchisee and promptly turned over to the franchisee;

d. Require a franchisee, as a condition for the approval of a renewal or transfer of a hospitality franchise, to assent to a general release from liability for the franchisor unless the franchisor provides to the franchisee a reciprocal general release;

e. Require a franchisee to purchase goods, services, supplies or inventories exclusively from the hospitality franchisor or sources designated by the franchisor where goods, services, supplies or inventories of comparable quality are available from sources other than those designated by the franchisor. However, the publication by the franchisor of a list of approved suppliers of goods, supplies, inventories, or services or the requirement that goods, supplies, inventories, or services comply with specifications and standards prescribed by the franchisor shall not constitute designation of a source, and a reasonable right of the franchisor to disapprove a supplier shall not constitute a designation. In the case of goods, supplies or inventories that carry a trademark, trade name or other identifying characteristic of the franchisor, the hospitality franchisor shall not unreasonably refuse to license the identifying characteristics to a vendor or supplier who meets the franchisor’s reasonable specifications and standards for quality of goods, financial soundness and capacity to meet the business requirements of the franchise;

f. Establish, directly or indirectly, a franchisor-owned or franchised outlet engaged in a substantially identical business to that of the franchisee within the franchisee’s exclusive or protected territory, if the franchise agreement provides for either. For the purposes of this act, an exclusive or protected territory is an area in which the franchisor shall not place a company-owned outlet or other franchisee;

g. Make any material change in the terms of the franchise agreement between a hospitality franchisor and franchisee through any unilateral change, made by the franchisor, to any operations manual or through any bulletin or other communication;

h. Impose any fee or charge upon a franchisee that has not previously been disclosed in a franchise disclosure document provided to the franchisee prior to signing the franchise agreement without the franchisee’s written agreement to pay the fee or charge;

i. Impose any fee or charge upon a hospitality franchisee for or on account of published guest reviews or criticisms of a franchisee, including:

(1) a franchisee’s failure to enroll a minimum number of guests prescribed by the franchisor in a franchisor’s loyalty program; or

(2) a franchisor’s services in resolving guest complaints to the franchisor about a franchisee, except that a refund provided by the franchisor to a complaining guest may be charged back to the franchisee;

j. Sell points or credits in a hospitality franchisor’s loyalty program to a guest for the purpose of permitting the guest to redeem points for a specific stay at a specific franchisee’s facility without compensating the franchisee for the stay at no less than the franchisee’s lowest publicly advertised rate for that stay or the value of the points sold, whichever is less;

k. Suspend, restrict, stop-sell, or prevent access to franchise services, including but not limited to property management systems, online listings, phone call sales, use of approved marks, or any other specified services included in the franchise agreement or provided in the usual course by a franchisor to a franchisee; or

l. Impose any costs, fees, charges, or penalties for a franchisee’s alleged failure to perform, including but not limited to: re-inspection fees, inspection failure fees, loyalty sign up fees, rate parity violation fees, customer care fees, conference attendance fees, retraining fees, and loyalty program fees.

3. A franchisee’s failure to comply with any provisions of section 7 of P.L.1971, c.356 (C.56:10-7) or this act shall not constitute good cause for termination of the franchise.

4. This act shall take effect immediately and shall apply to franchise agreements that are entered into, modified, amended, or renewed after its effective date.

STATEMENT

This bill creates provisions regarding hospitality franchises in the State of New Jersey, supplementing P.L.1971, c.356, the “Franchise Practices Act” (C.56:10-1 et seq.). These provisions apply to hospitality franchises where the franchisee is required to maintain a place of business within the State, or where the franchise owner, partner, member, investor, or guarantor is a resident of New Jersey and where over 20 percent of the franchisee’s gross sales are derived from their New Jersey franchise. The bill also ensures that franchises, as defined in 16 CFR 436 and 437, if they are hospitality franchises, will be considered “merchandise” under the consumer fraud act, P.L.1960, c.39 (C.56:8-1 et seq.).

The bill defines “hospitality franchise” as a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristic, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise, where the goods include any hotel, motel, inn, tourist camp, tourist cabin, tourist home, rooming house or similar establishment where sleeping accommodations are supplied for pay to transient or permanent guests.

The bill contains a list of hospitality franchisor activities that will be considered a violation of the “Franchise Practices Act” (C.56:10-1 et seq.). The bill makes it a violation for a hospitality franchisor to impose a restriction on the owner, officers, or employees of a franchise that limits their employment, ownership, or participation in any business activity for more than six months following their termination, cancellation, or non-renewal at the franchise in a county other than that in which the franchise was located.

The bill makes it a violation for a hospitality franchisor to require a franchisee to relocate or make any capital investment in excess of $25,000 more than once every five years, unless the franchisor can demonstrate that the franchisee will be able to recover the value of the investment over the remaining term of the franchise. The bill prohibits franchisors from receiving kickbacks, rebates, or other consideration from vendors that franchisees must patronize, unless the benefit is first disclosed to the franchisee and unless the benefit is turned over to the franchisee. The bill ensures that if the franchisee gives the hospitality franchisor a general release of claims upon renewal or transfer of the franchise, then the franchisee will receive a reciprocal release from the franchisor.

The bill makes it a violation for the hospitality franchisor to require a franchisee to purchase goods or services from suppliers designated by the franchisor if goods or services meeting the franchisor’s reasonable specifications and standards are available from other sources. The bill also calls for the franchisor to license a third-party supplier to use its trademarks for franchisee supplies in the case of supplies that carry the mark. The bill ensures that the hospitality franchisor will not compete with the franchisee in an exclusive or protected territory under a different name or mark.

The bill prohibits the practice of unilaterally changing the material terms of the franchise agreement by implementing changes in the operations manual. This provision makes it clear that the hospitality franchisor may not materially change the contract with the franchisee by altering the manual. The bill prohibits the franchisor from imposing any new fees on the franchisee unless the fees were disclosed in a franchise disclosure document. The bill makes it a violation for a hospitality franchisor to impose a fee or charge on the franchisee as the result of a guest’s published criticism of the franchisee, a franchisor’s resolution of complaints related to the franchisee, or the franchisee’s failure to enroll a minimum number of guests.

The bill prohibits a hospitality franchisor from selling points in a loyalty program to guests to use at a franchisee’s facility without compensating the franchisee for lost revenue. The bill would restrict the hospitality franchisor’s ability to deny a franchisee access to necessary franchisor programs, including but not limited to property management systems, online listings, phone sales or use of approved marks. The bill prohibits a hospitality franchisor from imposing fees based on a franchisee’s alleged failure to perform, including but not limited to re-inspection fees, inspection failure fees, loyalty sign-up fees, loyalty program fees, and others.

Finally, the bill specifies that a violation of any of these provisions, or any of the provisions of section 7 of P.L.1971, c.356 (C.56:10-7), shall not constitute good cause for a franchisee’s termination.