Franchising Law

A franchise agreement is a contract that establishes a franchise relationship. The parties involved in a franchise agreement are the franchisor and the franchisee. The franchisor grants a trademark license to the franchisee and retains overall control over how the franchised business is to be operated by the franchisee.

Unlike a license agreement, a franchise agreement aims to replicate a brand, its business model, and its ongoing operations. Franchise agreements require consistency, and unlike a license agreement, the franchisor has extensive control over the operation of the underlying business.

Franchising is often fast-paced, competitive, and full of opportunities. Kramer International Law offers the legal expertise and strategic guidance businesses need to enter the market, expand across jurisdictions, and lead with confidence.

We offer comprehensive legal support to franchisors, franchisees, and multi-unit operators. We assist both domestic and international clients with all aspects of franchise law in the US, Canada, and the UK.

We recognize that franchising success depends on strategic legal insight, operational flexibility, and a clear plan for managing the franchisor-franchisee relationship. We collaborate closely with franchisors and franchisees at every stage of the franchise lifecycle, providing proactive advice on system development, restructuring, dispute resolution, and compliance with complex and evolving disclosure regulations.

At Kramer International Law, we assist clients in launching, managing, safeguarding, and expanding their franchises in the US, Canada, and the UK.

It is important to note that the regulation of franchising varies significantly between the US, Canada, and the UK. The primary differences are outlined below.

US

Franchising is a highly regulated industry in the US.

At the federal level, the FTC (Federal Trade Commission) Franchise Rule applies nationwide and requires franchisors to provide prospective franchisees with detailed disclosures known as a Franchise Disclosure Document (“FDD”). An FDD must include, among other things, information about the franchisor, the franchisor’s system, and financial statements concerning the franchisor.

In the US, a franchisor may provide projections or earnings claims in an FDD, but it is optional. However, if a franchisor chooses to share projections or earnings claims, they must be clearly documented and substantiated within the FDD (known as an “Item 19” disclosure). Non-compliance can lead to regulatory penalties and franchisee claims.

From a business perspective, most successful franchisors make significant efforts to include financial performance data in their FDD to support franchise sales, and this practice is increasingly becoming industry standard.

The FTC requires that franchisors provide a FDD to prospective franchisees at least 14 clear days before any agreement is signed or a franchisee makes any payment. However, once the agreement is signed, rescission rights are limited and usually governed by contract or state law. That said, enforcement of franchise disclosure laws by federal and state authorities themselves can be extensive.

The US FDD is highly structured, consisting of 23 mandatory items that cover every aspect of the franchise relationship—from initial fees and estimated startup costs to litigation history and territory rights. This level of detail ensures transparency but leaves little room for customization.

Certain US states have enacted laws that govern franchising and the relationships formed through franchise agreements. Some of these laws include disclosure and practical requirements that differ from the FTC Franchise Rule, often increasing the compliance burden on franchisors and enhancing protections for franchisees.

Several states require that an FDD be registered and approved by the state. These state-specific laws can involve additional filings, fees, and compliance measures.

Additionally, many US states have passed laws that are designed to protect franchisees from certain contract terms commonly found in franchise agreements. These laws must be considered when dealing with such issues as compliance, renewals and disputes with franchisees.

Under the prevailing contractual and statutory laws of many US states, a franchisor or supplier cannot terminate a dealer or franchisee without cause – meaning that as long as the franchisee is fulfilling its obligations, it can retain its franchise or dealership.

Franchisors and suppliers sometimes try to achieve the same outcome as termination by refusing to renew the franchise or dealer agreement at the end of its term. Many US state statutes prevent the franchisor from doing this and allow the franchisee or dealer to continue operating as long as they are capably performing.

Failure by a franchisor to comply with either federal or state disclosure laws can lead to serious consequences. Multiple regulatory frameworks at federal and state levels may apply, each with their own penalties for non-compliance, depending on the jurisdiction. Therefore, franchisors are advised to seek advice from experienced franchise counsel to assist them throughout the sales process, not only in general but also specifically for each state where a franchise sale is planned.

Under federal law, violations of the FTC Franchise Rule are considered “unfair or deceptive acts or practices" under Section 5 of the FTC Act. When such a violation occurs, the FTC can pursue enforcement actions against franchisors using its broad investigatory powers, which include the ability to take testimony, examine witnesses, and issue civil investigatory demands (“CIDs”) and federal subpoenas. If a violation is confirmed, the FTC may initiate an administrative enforcement process before an administrative law judge (“ALJ”), whose decision can be enforced in federal court. The consequences of a franchisor’s violation of the disclosure rule may include civil penalties, restitution to affected parties, preliminary and permanent injunctive relief—potentially barring a franchisor from conducting business or engaging in certain conduct —and other equitable remedies.

Currently, however, the federal FTC Act does not provide for a private right of action for a franchisee to sue a franchisor directly under that statute.

Regardless of federal regulations, certain state statutes independently permit state regulators to use various remedies, including the ability to impose fines, seek preliminary and permanent injunctive relief—potentially banning a franchisor from operating within the state—and provide remedies for harmed parties, such as damages, restitution, or rescission. Some state violations are also punishable as crimes. Since a state’s regulatory authority generally functions independently from federal regulatory schemes, state law and its requirements must be reviewed and complied with separately from federal obligations.

Perhaps the most common risk to franchisors from non-compliance with disclosure and sales regulations currently arises from private actions permitted under certain state laws. Pursuant to those state laws, franchisors may be held directly civilly liable to franchisees, as franchisees can initiate their own private legal actions directly against the franchisor. Some states have unfair trade practices and consumer protection laws (often called “Little FTC Acts”), which provide franchisees with private rights of action for breaches of the federal FTC Act’s Franchise Rule. Many of these laws grant significantly increased damages, including, in some cases, multiple damages, punitive damages, and the shifting of legal costs.

Besides state Little FTC Acts, some states have their own franchise registration or disclosure rules that require a franchisor to register a FDD (or similar document). Other states require some type of registration or notice, and many states have general Business Opportunity Laws that apply to franchise deals. Each of these state laws not only gives state regulators enforcement powers, but many also allow affected parties to pursue private rights of action for disclosure breaches. Additionally, even when disclosure rules do not create a right of action, violations can increase the risk of liability for common law claims like fraud and misrepresentation or even breaches of an implied covenant of good faith and fair dealing in certain cases.

Importantly, certain state statutes permit actions against not only the franchisor, but also hold officers, directors, control persons, or principals of franchisors accountable if they engage in prohibited activities, including sales agents involved in the sale.

To ensure FDD compliance, franchisors should be aware of the possible need to update their disclosures. Both federal and state laws often require providing interim disclosures or amendments if material circumstances change. "Material changes” to a franchised system’s operations can be prompted by material shifts in financial conditions or the franchisor’s business model.

Restrictive Covenants

Under US federal antitrust law, in-term and post-term non-compete clauses (regarding franchisees) and non-solicitation of customer provisions are generally enforceable. However, the FTC and federal regulators have shown increased interest in potentially regulating post-term restrictive covenants within franchise agreements.

As “no poach” provisions are becoming less accepted, franchisors should carefully reconsider seeking to enforce such provisions, and some franchisors, after consulting with franchise counsel, are deciding to remove these provisions from their current franchise agreements.

Currently, the enforceability of these contract terms largely depends on state law. Some states already prohibit or heavily restrict post-termination non-competition clauses. In states that limit non-solicitation and non-compete clauses, enforceability often hinges on the “reasonableness” of the restriction, including factors such as the scope of business activity being limited, the duration of the restriction, whether it is necessary to protect the franchisor’s legitimate business interests, whether the restriction conflicts with public interest, and whether it is reasonable in geographic scope. Many states do not permit their non-competition statutory provisions to be waived, regardless of what a “choice of law” clause in a franchise agreement (or related agreement) may stipulate.

In the past, broad restrictive covenants were common in franchise agreements. However, with increased regulatory scrutiny and the possibility of new regulations, franchisors are advised to consider whether such clauses are necessary to protect their system. Many have decided that including restrictive covenants, such as non-competition and no poach restrictions, in their franchise and related agreements is not worth the risk.

Franchisors should assess whether their systems truly require such protections and if they are justified, considering that franchisors should be able to adequately safeguard their genuinely confidential information and trade secrets (if any) through well-drafted confidentiality and non-disclosure agreements (“NDAs”). It is recommended that franchisors regularly consult with knowledgeable counsel to determine what type of restrictive covenant provisions should be included or retained in the franchisor’s standard franchise agreement and related agreements.

CANADA

In contrast, franchising regulation in Canada is handled by individual provinces, not at the federal level. Presently, six provinces—Ontario, British Columbia, Alberta, Manitoba, New Brunswick, and Prince Edward Island—have implemented specific franchise laws, and Saskatchewan’s franchise legislation will soon be in force.

Canadian disclosure laws require franchisors to provide “all material facts,” but there is generally no legally mandated format like the US FDD. This offers franchisors more flexibility but also creates ambiguity about what must be disclosed.

Failing to provide comprehensive disclosure can lead to serious consequences, including the right for a franchisee to rescind the agreement within two years if disclosure was inadequate. For example, what might be considered “material” in one case may not be so considered in another.

Canadian franchise laws generally require a 14-day disclosure period as well, but they go further in protecting franchisees than does the US. If a franchisor fails to provide a disclosure document, or if the disclosure document is “fatally flawed”, franchisees in regulated provinces have up to two years to rescind the agreement and claim damages (i.e., get out of the franchise agreement and sue the franchisor).

Further, in some provinces, franchisees may rescind a franchise agreement within 60 days even for minor disclosure deficiencies. This provision emphasizes the importance of compliance.

Canadian laws do not explicitly address financial performance representations in a structured manner as do US laws. However, any earnings claims could be considered a “material fact” that must be disclosed if they are available. Ambiguity in this area can expose franchisors to claims if franchisees believe they have been misled by implied or informal financial projections. As such, the default in most instances is to not include any financial performance projections in a Canadian FDD.

Canadian franchise laws provide statutory protections that cannot be waived. For example, a franchise cannot waive its right to sue a Canadian franchisor for failing to comply with its franchise disclosure obligations.

Importantly, Canadian franchise laws also mandate a duty of fair dealing, which requires both parties to act in good faith and in accordance with reasonable commercial standards. This can significantly impact how disputes are resolved and how franchisors manage their franchisee network.

In Canada, there is no regulator or governmental agency with specific responsibility for franchising. Franchisors are not required to register with a specific franchise regulator, and there is no requirement for a franchisor to file its form of franchise disclosure document with any governmental agency. Rather, franchisors and franchisees are left to manage their own affairs under the terms of their franchise agreements and the provisions of applicable franchise legislation in the provinces that have enacted it.

Unlike franchise legislation in certain jurisdictions in the US, Canadian franchise statutes do not regulate the relationship between franchisors and franchisees, other than by imposing a duty of fair dealing on each of the parties to a franchise agreement. Unlike the way that some US state statutes do, Canadian franchise statutes do not place any requirements or restrictions on termination, non-renewal or transfer of the franchise agreement, or on territory protection or supply issues.

In Canada, the duty of fair dealing applies to the performance as well as to the enforcement of the franchise agreement and the exercise of rights under that agreement. The duty of fair dealing includes the obligation to act in good faith and in accordance with reasonable commercial standards. If a party to a franchise agreement breaches the duty of fair dealing, the other party will have a right of action for damages against that party as a result of that breach.

Each of the Canadian provincial franchise statutes provides that any clause in a franchise agreement attempting to restrict the application of the law of that province, or to limit jurisdiction or venue to a forum outside that province, is void with respect to a claim that would otherwise be enforceable under the legislation of that province.

Each Canadian provincial franchise law further states that any waiver or release by a franchisee of rights or obligations under the law is invalid. As a result, the parties involved in a franchise agreement covered by these statutes cannot bypass its provisions via contract.

Restrictive Covenants

Non-compete and non-solicitation covenants are enforceable unless deemed unreasonable. To meet the reasonableness standard, these covenants must protect a legitimate commercial interest of the franchisor. They must not be broader – in terms of geographic area, duration, or scope – than what is necessary to safeguard that interest. Additionally, it is important to understand that if a court finds a non-competition clause unreasonable, it will invalidate the entire covenant.

In-term non-compete covenants can have a broader scope compared to post-term non-competes, which are usually interpreted more strictly. In the province of Quebec, discussed below, a reasonable geographic limitation applies to both in-term and post-term non-competition clauses, although the latter can be more extensive.

On the other hand, non-solicitation clauses can be drafted more broadly than non-competition clauses because they are seen as less of a restriction on a person’s ability to earn a living. Therefore, the geographical scope and duration of the non-solicitation covenant are not examined as strictly as non-competition covenants. However, the individuals who are not to be solicited must be clearly identifiable.

In cases of violating non-compete or non-solicitation clauses, Canadian courts are generally willing to issue interlocutory injunctions if the following conditions are satisfied: (1) there is a serious issue to be tried; (2) the claimant will suffer irreparable harm if the injunction is not granted; and (3) the balance of inconvenience favours granting the injunction.

Franchising in the Province of Quebec

In the province of Quebec, a civil law jurisdiction, franchise agreements are generally regarded as “contracts of adhesion” that are subject to specific requirements under the Civil Code of Quebec. There is no separate statute that governs franchising in Quebec.

Among other things, a contract of adhesion must be drafted in clear and understandable language and cannot refer to provisions in other contracts unless those provisions are explicitly brought to the non-drafting party’s attention and incorporated by reference into the contract. Any abusive or excessively onerous provisions may be declared null and void or may be reduced in their effect, and the contract as a whole will typically be interpreted in favour of the party who did not draft it.

Given the specific requirements for contracts of adhesion under the Civil Code of Quebec, franchisors considering expansion into Quebec should consult with local Quebec counsel experienced in franchising and have their franchise agreement reviewed to ensure compliance with Quebec law. Kramer International Law is authorized to practice law in the province of Quebec.

UK

The UK does not have specific franchise laws. Instead, franchise agreements are mainly governed by contract law, competition law, and intellectual property (IP) law.

The field of franchising also follows self-regulatory standards in the UK, especially the British Franchise Association (BFA) Code of Ethics, which is in line with the European Code of Ethics for Franchising.

The BFA is the UK’s leading self-regulatory organization for franchising, dedicated to promoting high standards and ethical business conduct. Although not legally enforceable, the BFA Code of Ethics significantly influences industry standards. It encourages transparency, fair dealing, and responsible franchising practices across the entire franchise lifecycle.

All BFA members must follow these standards as part of the BFA’s accreditation process. However, it is not mandatory for franchisors and franchisees to be BFA members.

Franchise agreements in the UK are legally binding contracts that specify the rights and responsibilities of both franchisor and franchisee. These agreements are generally long-term and relationship-based, requiring continuous cooperation and mutual trust.

In the UK, there are no mandatory disclosure obligations either at the beginning of the franchise relationship or on an ongoing basis.

Currently, English contract law does not impose a general duty of good faith and fair dealing in the franchising context. However, some believe that eventually, the courts will likely imply such a term into franchise agreements.

Although English law does not impose a broad duty of good faith, courts are progressively acknowledging implied obligations of honesty and fair dealing in relational contracts. This recognition is particularly evident when there is a power imbalance or significant interdependence between the parties, and in some particular instances, a duty of good faith has been explicitly applied.

Closely linked to this is the so-called Braganza duty principle, which mandates that any contractual discretion used by a party—such as a franchisor making decisions impacting the franchisee—must be exercised honestly, rationally, and for a legitimate purpose. Franchisors should be aware of this when drafting agreements and making discretionary choices, as courts may review these actions based on this principle.

There are no specific “relationship” or other laws governing the ongoing dealings between the franchisor and franchisee once the franchise agreement takes effect. The BFA Code of Ethics outlines general responsibilities of the franchisor regarding its treatment of the franchisee throughout the duration of the franchise agreement. However, general principles of law will still apply.

Franchise agreements must adhere to UK competition law, especially if they impose restrictions on pricing, territories, or sales channels. These clauses should be carefully designed to prevent anti-competitive outcomes. The Competition Act 1998 and guidance from the Competition and Markets Authority (CMA) are important references.

Dispute resolution mechanisms like mediation and arbitration are commonly employed, and the BFA provides support for resolving franchise conflicts.

The Trading Schemes Act 1996 could apply to multi-tier franchise models, where franchisees hire sub-franchisees. It is important to ensure compliance with anti-pyramid selling rules in these scenarios.

Franchise agreements do not need to be registered with any local authority in the UK.

While there is no legal obligation for franchisors to supply a franchise disclosure document (FDD), the BFA advocates for transparency and disclosure as standard best practice. In this regard, the BFA Code of Ethics requires BFA member franchisors to provide “full and accurate written disclosure of all information material to the franchise relationship within a reasonable time prior to the execution of binding documents”.

There are no particular laws regulating the sale and purchase of franchises in the UK.

Note that Article 2.2 of the BFA’s Code of Ethics obliges a BFA member franchisor to provide an individual franchisee with initial training and continuing commercial and/or technical assistance during the entire life of the agreement.

Restrictive Covenants

Non-compete clauses are allowed under UK law, but their enforceability relies on reasonableness regarding scope, duration, and location. Typically, non-compete agreements are enforceable if they are proportional and directly serve to safeguard the franchisor’s legitimate interests, including brand reputation, proprietary knowledge, and customer relationships.

Post-term restrictions face stricter examination under UK competition law. They can be enforceable if they are limited in duration—usually no longer than one year— and are specifically tailored to the franchisee’s geographic area and business activities. They must also be essential for safeguarding transferred know-how or intellectual property.

In the UK, the enforceability of non-solicitation clauses in franchise agreements is determined by general contract law and competition law, under the common law principle of restraint of trade.

Non-solicitation clauses are a form of restrictive covenant and are only enforceable if they are considered reasonable and go no further than is necessary to protect the franchisor's legitimate business interests.

Franchise Services We Provide at Kramer International Law

Transnational franchise relationships differ significantly from domestic ones. We advise companies on the legal implications in specific countries and assist in structuring, negotiating, and documenting all types of international franchising arrangements. These include master franchise and area development agreements, joint ventures, franchises in nontraditional venues such as airports or train stations, area representative relationships, and various combinations of these arrangements.

We advise domestic and international companies on strategic expansion opportunities and challenges.

We are committed to achieving positive outcomes for our clients in a cost-effective manner that is customized to their specific needs.

At Kramer International Law, we collaborate with franchisors, master franchisees, franchisees, manufacturers, distributors, dealers, and industry associations to ensure both immediate success and long-term growth preparedness.

We collaborate with clients to negotiate a range of agreements such as franchise contracts, development rights agreements, cooperative advertising deals, market test agreements, consent to assignment agreements, supply and distribution contracts, as well as agreements for alternative channels (including e-commerce), termination, and settlement.

We handle corporate restructuring, franchise rescission, disputes between franchisees and franchisors, distribution and supply agreements, as well as all kinds of commercial lease arrangements and site acquisitions.

Our franchise law practice helps clients by:

· Drafting the full suite of franchise and support agreements, including master franchise agreements, and distribution and sales representative agreements.

· Structuring licensing and distribution agreements.

· Preparing and updating franchise disclosure documents.

· Providing advice on financing, acquiring, or selling existing franchise systems or individual franchise locations.

· Providing support for ending franchisor/franchisee, distributor, and agency relationships

· Resolving disputes between franchisors and franchisees.

· Providing guidance and ensuring the enforcement of trademarks and other proprietary rights.

· Advising on legislation related to advertising, contests, packaging, labelling, and other regulatory issues.

· Drafting and enforcing territorial restrictions, non-compete clauses, and non-solicitation clauses.

· Providing guidance on whether franchise legislation applies to distribution and sales representative relationships.

· Advising on alleged violations of franchise laws.

· Enforcing intellectual property rights.

· Recovering inventory and enforcing payment obligations.

· Resolving disputes via alternative methods like mediation and arbitration.

Litigation

We both pursue and defend breach of contract actions on behalf of our clients, including actions related to:

· Exclusive territories.

· Encroachment.

· Non-competition agreements.

· Rights to transfer the franchise.

· Termination rights.

· Franchisor and franchisee performance.

We litigate claims related to good faith and fair dealing (where applicable), rights to new products, franchisor pricing of its products, and other facets of the franchise relationship.

We support clients of all sizes in addressing a wide range of legal challenges—covering federal, state/provincial, and international laws and regulations, safeguarding trademarks and intellectual property, and adapting to evolving areas such as brand standards, product safety, joint employer issues, officer and vicarious liability, cybersecurity, encroachment, antitrust, and unfair competition.

At Kramer International Law, we serve as legal advisors to franchise participants, helping to safeguard their valuable assets while enhancing their business opportunities.

We are here to guide and support you throughout your entire franchising journey.

We can assist you in building and leveraging your brand and systems, giving you the expertise to expand through franchising in the US, Canada, the UK, or other locations.

Whether you're a franchisor aiming to grow your brand or a franchisee starting a new business venture, navigating the legal complexities of franchising requires knowledgeable legal advice. Kramer International Law offers comprehensive guidance supported by sector expertise, experience, and capabilities tailored to both franchisors and franchisees to ensure legal protection and business success.

At Kramer International Law, we offer comprehensive legal services to assist businesses in navigating the complex landscape of franchising law. We are committed to providing essential legal support for business growth while reducing risks.

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