A3495

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.

c. For the purposes of this act:

“Consideration” means a rebate, commission, licensing fee, marketing fee, transaction fee, system fee, system activity fee, services, or any other thing of value;

“Franchisee advisory committee” means a committee, council, board, or other body elected by the franchisees and independent from the franchisor, and charged with enhancing communication, working together to improve the system, and helping to resolve challenges that impact the franchise system as a whole;

“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. Receive, directly or indirectly, any consideration from any vendor, or affiliate of a vendor, that sells goods or services to a franchisee of the hospitality franchisor unless the consideration received from such vendor, or affiliate of a vendor, is fully disclosed to the franchisee and promptly turned over to the franchisee;

b. 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;

c. 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 without franchisee’s written consent;

d. 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, unless such change involves material health, safety and welfare protections for the franchisee’s guests or workforce;

e. 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 approval of the franchisee advisory committee or the franchisee’s written agreement to pay the fee or charge;

f. Impose any fee or charge upon a hospitality franchisee for or on account of a franchisee’s failure to enroll a minimum number of guests prescribed by the franchisor in a franchisor’s loyalty program; or

g. 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.

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 would supplement the “Franchise Practices Act,” P.L.1971, c.356 (C.56:10-1 et seq.) (Franchise Practices Act) to address hospitality franchises in which the franchisee is required to maintain a place of business within the State. Under the bill, a franchise, as defined in 16 CFR 36 and 437, that is a hospitality franchise, 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. The bill makes it a violation for a hospitality franchisor to receive consideration, directly or indirectly, from a vendor or affiliate unless the consideration is first disclosed to the franchisee and unless the benefit is turned over to the franchisee.

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 without the franchisee’s consent.

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, unless the change concerns the health, safety, or welfare of guests or employees. The bill prohibits the franchisor from imposing any new fees on the franchisee unless the fees were disclosed in a franchise disclosure document, and unless they were approved by the franchisee advisory committee or the franchisee. The bill makes it a violation for a hospitality franchisor to impose a fee or charge on the franchisee as the result of a 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.

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.