Assembly Commerce, Economic Development and Agriculture Committee Statement to Assembly, No. 3495 (May 13, 2024)

Summary

Assembly Commerce, Economic Development and Agriculture Committee statement to [First Reprint] Assembly, No. 3495, State of New Jersey, dated May 13, 2024. The committee reports favorably Assembly Bill No. 3495 (1R), which would supplement the “Franchise Practices Act” to address hospitality franchises in which the franchisee is required to maintain a place of business within the State. The statement says the bill lists hospitality franchisor activities that would be violations, including receiving consideration from a vendor or affiliate unless it is first disclosed to the franchisee or in the franchise disclosure document. It also says the bill prohibits imposing new fees unless they were disclosed in a franchise disclosure document and approved by the franchisee advisory committee or agreed to in writing.

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ASSEMBLY COMMERCE, ECONOMIC DEVELOPMENT AND
           AGRICULTURE COMMITTEE

                           STATEMENT TO

                              [First Reprint]
                      ASSEMBLY, No. 3495

       STATE OF NEW JERSEY
                             DATED: MAY 13, 2024

          The Assembly Commerce, Economic Development and
      Agriculture Committee reports favorably Assembly Bill No. 3495
      (1R).
          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 C.F.R. s.36 and 16 C.F.R. s.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:
          (1) first disclosed to the franchisee or is disclosed in the franchise
      disclosure document; and
          (2) unless the benefit is turned over to the franchisee or is placed
      into a dedicated expenditure fund that benefits the franchisee and the
      disbursements from the fund are approved by the Franchisee Advisory
      Committee.
          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 prohibits the franchisor from unreasonably
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refusing to license a trademark, trade name, or other 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. 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 clarifies that the hospitality
franchisor may not materially change the contract with the franchisee
by altering the manual, unless the change involves material health,
safety, and welfare protections for the franchisee’s guests or
workforce. 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 approved by the franchisee advisory
committee or agreed to, in writing, by 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 directly to a guest to stay at a franchisee’s facility
without compensating the franchisee for the stay. The bill provides
that the prohibition is not to be construed to restrict a franchisor’s
ability to sell loyalty points to airlines or travel partners, financial
institutions, credit card companies, or other third-party organizations
offering loyalty points to consumers.
    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.


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