Assembly Commerce and Economic Development Committee Statement to Assembly, No. 1958 (March 20, 2023)

Summary

Statement of the Assembly Commerce and Economic Development Committee, State of New Jersey, dated March 20, 2023, reporting favorably Assembly Bill No. 1958 with committee amendments. As amended, the bill would supplement the "Franchise Practices Act," P.L.1971, c.356, to address hospitality franchises, such as hotel and motel franchises, and treat them as "merchandise" under the consumer fraud act. It makes it a violation for a hospitality franchisor to receive undisclosed consideration from a vendor, to require purchases from designated suppliers when other sources meet the franchisor’s reasonable specifications, or to impose new fees not disclosed or approved. It also bars selling loyalty program points for use at a franchisee's facility without compensating the franchisee for lost revenue.

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ASSEMBLY COMMERCE AND ECONOMIC DEVELOPMENT COMMITTEE

STATEMENT TO

ASSEMBLY,
No. 1958

with
committee amendments

STATE
OF NEW JERSEY

DATED: MARCH
20, 2023

The
Assembly Commerce and Economic Development Committee reports favorably Assembly
Bill No. 1958, with committee amendments.

As
amended, 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.

COMMITTEE AMENDMENTS:

Proposed committee amendments would:

· Omit from the bill’s scope a hospitality franchise agreement that
requires a franchisee owner, partner, member, investor, or guarantor to be a
resident of New Jersey, and intends more than 20 percent of the franchisee’s
gross sales to be derived from that franchise.

· Define the terms “consideration” and “franchise advisory
committee.”

· Omit from the bill several potential violations of the Franchise
Practices Act and clarify some other potential violations.

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