Franchise Basics in Washington: FTC Rule and FIPA

We are all familiar with franchises to some degree or another.  If you don’t think you are familiar, just drive down a main street in any town, and you will surely encounter a franchised business at some point.  Because franchises are prevalent and many people will consider becoming a franchisee and opening a franchised business, it is important to understand some things about the laws related to opening a franchise.

The Federal Trade Commission Franchise Rule governs the process of franchising a business model.  The main point of the FTC Franchise Rule is that it requires a franchisor to create and distribute to any potential franchisee a disclosure document with relevant information about the franchised business.

Franchised businesses are also often governed by state law.  Washington is one of the states with franchise laws.  Washington’s applicable statute is called the Franchise Investment Protection Act (“FIPA”) and is codified at RCW 19.100.

FIPA provides greater protections for franchisees than the FTC Franchise Rule.  For example, RCW 19.100.220(2) prohibits the release or waiver of any provision under FIPA with the following exception: “[a] release or waiver executed by any person pursuant to a negotiated settlement in connection with a bona fide dispute between a franchisee and a franchisor, arising after their franchise agreement has taken effect, in which the person giving the release or waiver is represented by independent legal counsel, is not an agreement prohibited by [FIPA].”  Another example is under RCW 19.100.180(2)(j) where a franchisor is prohibited from terminating a franchisee without good cause.

The environment for franchising a business and also purchasing a franchise business is highly regulated.  Therefore, be sure to contact an experienced advisor, such as an attorney with franchise experience, before getting too far down the franchise road.  MPBA has many years of franchise law experience, so please contact us with any questions.