Arizona Franchise Law: Will Arizona Regulate Franchise Relationships?

The Arizona legislature is considering the first major regulation of business format franchising since the inception of federal franchise regulation in 1979. HB 2404 has widespread bipartisan support and is going to a final reading and vote in the Arizona House of Representatives before heading to the State Senate.

The Bill would add Arizona to a list of over 20 states that have laws known as “franchise relationship” statutes. These statutes are intended to “level the playing field” in franchise relationships by imposing conditions that might be at odds with the franchise agreement. The Bill has certain “standard” provisions such as a requirement for “good cause” for termination, sixty days’ notice before termination and 180 days’ notice if the franchise will not be renewed. It also creates a private cause of action for violating franchise disclosure laws.

A more atypical provision in the Arizona Bill is a mandatory buyback at market rates of inventory, equipment, product and supplies used in the franchise upon a lawful termination or non-renewal.

Arizona courts have a history of rendering decisions favorable to franchisees in disputes with their franchisor. Yet, the Legislature has not sought to impose regulations other than industry specific regulation such as petroleum and beer dealerships. We will continue to monitor the progress, and if the Bill is signed into law, report further on the final details.

James A. Ullman Attorney