Assembly Commerce, Economic Development and Agriculture Committee Statement to Assembly, No. 3495 (1R) (2024)

Summary

Statement of the Assembly Commerce, Economic Development and Agriculture Committee, State of New Jersey, dated May 13, 2024, reporting favorably Assembly Bill No. 3495 (1R), which would supplement the "Franchise Practices Act," P.L.1971, c.356, for hospitality franchises such as hotels, motels and inns. Under the bill, a hospitality franchisor may not take vendor consideration unless it is disclosed and either passed to the franchisee or placed in a dedicated expenditure fund approved by the Franchisee Advisory Committee. The bill bars unreasonably refusing to license a trademark to a qualified vendor and selling loyalty points directly to a guest for a franchisee's facility without compensating the franchisee. It does not restrict selling loyalty points to airlines, financial institutions or credit card companies.

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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 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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