New Policy Prohibiting Certain Questionnaires and Acknowledgments
On September 18, 2022, the North American Securities Administrators Association (NASAA) adopted a Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgements. NASAA is the organization of state securities and franchise regulators and its policies and recommendations are widely adopted and enforced by the franchise registration states and followed by the Federal Trade Commission.
The most important thing to understand is that the Statement of Policy is not a change in the law. For at about 50 years, at least 21 state laws have had “anti-waiver” provisions, which have made such clauses in franchise agreements illegal. The problem has been in enforcement. State regulators have historically not enforced them and judges and arbitrators have either ignored or not enforced the laws. This is a Statement of Policy from the group of officials charged with enforcing the franchise laws making it clear that they take anti-waiver laws seriously and will, from now on, enforce them at the administrative level. This means that franchisors who seek registration with the states will be required to remove such provisions and add the very important additional language to all franchise agreements and FDDs.
That language is as follows:
No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
The registration state regulators have already started enforcing this Statement of Policy. Franchisors will now be required to remove such questionnaires and acknowledgements from their franchise documents and franchisees will begin seeing the new admonition language in their agreements and FDDs.
You can read the entire Statement of Policy here: NASAA Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments
The law changes. However, this time, it is not the law changing, but a formal announcement that the state franchise authorities are not enforcing the laws that have been on the books, but ignored, for about 50 years. It is this writer’s hope that this pronouncement will improve the world of franchising by helping to assure that franchisees get only full and complete and truthful information before they make the biggest investment of their lives.
If you have questions about how this NASAA Statement of Policy will affect your franchise, please contact Bundy & Fichter PLLC. We would be happy to address the issue with you. If you are a franchisor, we can help you comply. If you are a franchisee, we can help you understand how it affects your rights.