Franchise Law in Minnesota is governed by the Minnesota Franchise Act set out in Minnesota Statutes § 80C. A franchise is established when a franchisor (person selling or offering to sell a franchise) allows a franchisee (person given the rights to operate franchise) to operate a business using the franchisor’s trade name, logo, advertising, symbols, and other such distinctive characteristics. Some common franchises are fast food chains (Burger King, Wendy’s, Dairy Queen, etc.) and gas stations. A franchise agreement between two or more parties is a contract that sets out the business relationship as well as the stipulations of operating a franchise.
A franchise is created in Minnesota when three elements are present. Minn. Stat. §80C.01 (2011). First, a right is granted by the franchisor to the franchisee to engage in business using the franchisor’s trade name or other symbol. Second, when the franchisor and franchisee have a community of interest in the marketing of goods or services. In Minnesota, a community of interest is understood to be when the two parties involved have a common or shared financial interest. Third, a franchisee fee must be paid by the franchisee. Generally, the franchise fee is “any fee or charge that a franchisee . . . agrees to pay for the right to enter into a business or to continue a business under a franchise agreement.” Minn. Stat. § 80C.01 subdiv. 9. This fee can vary depending on the agreement created between the two parties. Some examples of franchise fees are payment (installments or lump sum) of a capital investment fee, charges or fees based on percentage of gross sales, or training fees. Minn. Stat. § 80C.01 subdiv. 9.
The Minnesota Franchise Act applies when a sale or an offer to sell a franchise is made in Minnesota, when an offer to purchase a franchise is made and accepted in Minnesota, or when the franchise is going to be located in Minnesota. One of the most significant elements of the Minnesota Franchise Act is the requirement for all franchises to be registered with the Minnesota Department of Commerce. Minn. Stat. § 80C.02. Registration of the franchise must be renewed annually. There are a limited number of circumstances where a franchise may be exempt from registration. These circumstances are listed under Minnesota Statute § 80C.03. When submitting registration materials to the Department of Commerce, a public offering statement is also required. Minn. Stat. § 80C.04 subdiv. 1. The public offering must contain certain information stated in § 80C.04 generally outlining the relationship and transaction between the franchisor and the franchisee.
There are many protections built into the Minnesota Franchise Act, primarily to protect the franchisee. In most franchisor-franchisee relationships the franchisor, as a wide-spread and typically popular chain of business, has more resources at its disposal, and financially has the upper hand against the franchisee. This disparity between the parties and uneven bargaining power could lead to problems or potential abuses by the franchisor. Chiefly, the Minnesota Franchise Act allows for the franchisor to be held civilly liable to the franchisee for any unfair practices that occur. Minn. Stat. § 80C.14 subdiv. 1. Additionally, the franchisor cannot terminate the franchise, fail to renew the franchise, or withhold consent to transfer the franchise without giving written notice 90 days ahead of time addressing the reasons why, and without good cause for doing so. Good cause is typically adequate when the franchisee has failed to reasonably comply with the franchise agreement between the parties. Minn. Stat. § 80C.14 subdiv. 3. Any violation of the Minnesota Franchise Agreement results in holding the franchisor civilly liable to the franchisee “for rescission, or other relief as the court may deem appropriate.” Minn. Stat. § 80C.17 subdiv. 1.
For further information https://www.revisor.leg.state.mn.us/statutes/?id=80C contains the Minnesota Franchise Act in its entirety. Also, http://mn.gov/commerce/ provides all of the information regarding registration of the franchise as well as requisite forms that are required, the steps that need to be taken, and any fees associated with the process. Further, https://www.revisor.leg.state.mn.us/rules/?id=2860 states the Minnesota Department of Commerce’s Franchise Rules in their entirety.
The content of this post has been copied from the Federal Trade Commission’s Franchise Rule 16 C.F.R. Part 436 Compliance Guide