An act relating to designating a franchise relationship

Added a new chapter (9 V.S.A. chapter 106) titled 'Franchise Agreements' with nine sections (4051-4059) creating a full regulatory framework for the franchisor-franchisee relationship in Vermont.

The bill title changed from 'An act relating to designating a franchise relationship' to 'An act relating to the regulation of franchise agreements,' reflecting the much broader regulatory purpose.

Section 4052 requires franchisors to have good cause to terminate early, defined as failure to substantially comply after 60 days written notice and 60 days to cure. Lists 11 specific events permitting immediate termination without cure (bankruptcy, abandonment for 5 consecutive days, felony conviction, nonpayment of fees after 10-day notice, imminent danger to public health or safety, etc.).

Section 4053 requires franchisors to purchase all inventory, supplies, equipment, fixtures, furnishings, and improvements at current market value upon lawful termination or nonrenewal, with specific exceptions (franchisee declines renewal, mutual agreement, complete withdrawal from market, items sold before cessation).

Section 4054 requires franchisors to give at least 180 days written notice before nonrenewal and permits the franchisee to sell the business during that period. Prohibits nonrenewal for the purpose of converting the location to company-owned operation.

Section 4056 protects franchisees' right to sell or transfer their business, requires franchisors to respond to transfer applications within 60 days (deemed approved if no response), grants surviving spouses/heirs 12 months after death to maintain or transfer the franchise, and allows franchisors to exercise contractual right of first refusal.

Section 4058 voids noncompete clauses in franchise agreements (with notice requirement for existing ones), prohibits pre-dispute mandatory arbitration, voids out-of-state venue restrictions, makes liquidated damages unenforceable upon franchisor-initiated termination, prohibits cross-default between agreements, and bars franchisors from controlling franchisee employees or day-to-day operations.

Section 4055 allows a franchisee to terminate without penalty or fees if changes to the franchise system or competitive circumstances cause substantial negative impact or financial hardship.

Section 4057 lists numerous prohibited franchisor acts deemed unfair and deceptive practices, including: obtaining undisclosed vendor rebates or kickbacks, requiring capital expenditures over $5,000 without a validated business case showing positive ROI, discriminatory pricing between franchisees, restricting environmentally conscious product sourcing, and failing to provide records of marketing and advertising funds.

Section 4059 grants franchisees the right to sue in Vermont courts for damages plus attorney's fees and injunctive relief. For unlawful termination or nonrenewal, franchisees are entitled to fair market value of the business and franchise assets. Establishes exclusive jurisdiction in Vermont state and federal courts.

The new chapter 106 provisions take effect July 1, 2026, while the original Section 1654 filing designation requirement retains its January 1, 2027 effective date. The enacted version had only the single January 1, 2027 date.

Added an entirely new chapter (9 V.S.A. chapter 106, Franchise Agreements) with nine sections (4051-4059) creating comprehensive regulation of franchise relationships in Vermont, including definitions, termination rules, inventory buy-back requirements, nonrenewal notice, transfer rights, conduct prohibitions, agreement provisions, and liability.

The bill title was expanded from 'An act relating to designating a franchise relationship' to include 'An act relating to the regulation of franchise agreements,' reflecting the much broader scope of the legislation.

Section 4052 requires franchisors to have good cause to terminate a franchise agreement before its term expires, with a minimum 60-day written notice and 60-day cure period, except in specified circumstances like bankruptcy, abandonment, felony conviction, or imminent public safety danger.

Section 4053 requires franchisors to purchase inventory, supplies, equipment, fixtures, furnishings, and improvements at current market value upon lawful termination or nonrenewal, with specific exceptions for declined renewals, mutual agreements, and geographic market withdrawals.

Section 4056 establishes that franchisors cannot prevent franchisees from selling or transferring their business, grants surviving spouses and heirs a 12-month window after a franchisee's death to maintain the franchise, and sets a 60-day approval/disapproval timeline for transfers.

Section 4054 requires franchisors to provide at least 180 days written notice before nonrenewal and permits franchisees to sell the business during that period, unless the refusal is for converting premises to company-owned operation or other specified exceptions apply.

The effective date was split: the new chapter 106 (franchise agreement regulation) takes effect July 1, 2026, while the original section 1654 (franchise designation filing requirement) takes effect January 1, 2027. The original single effective date of January 1, 2027 now applies only to the filing designation provision.

Section 4055 allows franchisees to terminate without penalty or fees if changes to the franchise system or competitive circumstances cause substantial negative impact or financial hardship.

Section 4057 lists extensive prohibitions on franchisor conduct including: no noncompete agreements (void and unenforceable), no mandatory pre-dispute arbitration, no venue restrictions outside Vermont, no requiring capital expenditures over $5,000 without a validated business case, no undisclosed vendor rebates or kickbacks, no discrimination between franchisees, and no restricting environmentally conscious product sourcing.

Section 4059 provides that franchisees may sue for damages, actual costs including attorney's fees, and injunctive relief; establishes Vermont law as governing law with exclusive jurisdiction in state and federal courts in the state; and entitles franchisees to fair market value of the business plus other damages for unlawful termination or nonrenewal.

Section 4051 defines key terms including 'agreement not to compete,' 'franchise,' 'franchise agreement,' 'franchised business,' 'franchisee,' and 'franchisor.'

Entire new 9 V.S.A. Chapter 106 was deleted, including all substantive provisions: termination protections with 60-day notice and cure periods, mandatory inventory buyback at market value upon termination, 180-day nonrenewal notice requirements, franchisee right to terminate without penalty for substantial hardship, freedom to sell or transfer a franchise, extensive list of prohibited franchisor practices (including restrictions on capital expenditures over $5,000, environmental sourcing rights, and disclosure of vendor rebates), bans on pre-dispute arbitration clauses, voiding of noncompete agreements, venue restrictions keeping disputes in Vermont courts, and liability provisions allowing franchisees to recover fair market value of their business for unlawful termination.

Bill title changed from 'An act relating to the regulation of franchise agreements' to 'An act relating to designating a franchise relationship,' reflecting the dramatic reduction in scope from comprehensive regulation to a simple administrative filing requirement.

Effective date changed from July 1, 2026 (House version) to January 1, 2027 (enacted version), pushing implementation back by six months.

The entire new 9 V.S.A. Chapter 106 on franchise agreements was removed, including all provisions on termination for good cause, 60-day cure periods, inventory repurchase at market value, 180-day nonrenewal notice, franchisee right to terminate without penalty, transfer and sale protections, death-of-franchisee provisions, anti-discrimination rules, environmental sourcing rights, capital expenditure limits, noncompete voiding, arbitration clause bans, venue restrictions, and exclusive Vermont court jurisdiction.

A new section 1654 was added to 11 V.S.A. chapter 15, subchapter 3 (Administrative Provisions for Business Organizations), requiring any person doing business in Vermont as a franchisor or franchisee to indicate that status at the time of filing with the Secretary of State and, if a franchisee, to provide the name of the franchisor.

The effective date was changed from July 1, 2026 to January 1, 2027.

The introduced version contained detailed state-level definitions of franchise, franchise agreement, franchisor, franchisee, and agreement not to compete. The passed version instead incorporates federal definitions of 'franchisee' and 'franchisor' by reference to 16 C.F.R. section 436.1.

All enforcement mechanisms were removed, including the right to sue for damages plus attorney's fees, injunctive relief, fair market value remedy for unlawful termination, and the provision making violations an unfair and deceptive act or practice.