UPDATED: Franchise Registration States Accommodate An Industry Impacted By Coronavirus

As the COVID-19 pandemic has put businesses in unprecedented situations, companies are forced to adapt and modify their operations. In response to this monumental disruption to business, a several states have already begun releasing updated guidelines for franchise registrations and renewals in the hopes to mitigate the impact that this pandemic has had on franchisors. These new policies include the pushback of some deadlines and changes to the form of application submissions to the state. Below we have listed the new policies put into effect as of April 2, 2020:

California

Process Changes:  California will allow businesses to use DocuSign in lieu of physical signatures if filings are electronic, and is encouraging businesses to file online. The Department of Business Oversight will temporarily waive late fees for franchise renewals and registrations.

Hawaii

Process Changes:

The state of Hawaii encourages franchisors filing renewal or initial filings pursuant to chapter 482E Hawaii Revised Statuses to file online using the securities portal in order to further facilitate timely review.

Registration and Disclosure Changes:

The State Department of Commerce and Consumer Affairs’ (DCCA) has extended the deadline for franchise filings to April 30, 2020.  International Franchise Association reports that the state is willing to discuss potential issues on a case-by-case basis.

Illinois

The International Franchise Association reports that Illinois’ franchise regulators are willing to examine potential deadline changes on a case by case basis.  The International Franchise Association reports that state is relaxing the enforcement of deadlines, looking for ‘good faith’ effort, but that private rights of action will still be applicable.

Indiana

The state of Indiana has not issued an extension but has advised the International Franchise Association that it is willing to work with companies on a case by case basis.

Maryland

Process Changes: Registration applications are to be filed solely on CD-ROM, removing the requirement of paper copies to be provided. This CD-ROM should be submitted with a paper cover letter or application page, and a physical check made out to “Office of the Attorney General.”

Registration and Disclosure Changes: Effective immediately, the Maryland Securities Commissioner has granted an automatic extension of the effective dates of franchise registration and exemptions that would have expired during this state of emergency. During this state, franchisors can continue to offer (but not sell) franchises under certain conditions. The franchisor must provide an updated Franchise Disclosure Document compliant with the FTC Franchise Rule to prospective Maryland offerees. These updates only apply to franchises filed in the state of Maryland.

Minnesota

Process Changes:

The state of Minnesota has temporarily removed its’ requirement for notarized signatures.

Registration changes:

Minnesota’s filing deadlines have been extended and have been moved from April 30 to June 30.

New York

Process Changes:

All forms required to be submitted in paper or by CD-ROM will now also be required to be submitted by email to: IPBFRANCHISE@AG.NY.GOV

Registration changes:

Franchise renewals due between March 1, 2020  and April 30, 2020 now have extended deadlines to July 30, 2020.

Rhode Island

The state of Rhode Island has removed penalties for registrations due in March or April. The state expects that they will release more information on their website.

Virginia

Process Changes: The Virginia Division of Securities and Retail Franchising will no longer be requiring application submissions to be made with paper copies. Franchises may submit their Franchise Disclosure Document and application on a CD or USB along with a paper copy of the Form A application and a physical check to cover the application fees.

Registration and Disclosure Changes: The Supreme Court of Virginia released a “Judicial Emergency Declaration” which has granted extensions on upcoming registration and exemption deadlines. They have announced a Judicial Emergency Declaration that states that any franchise registered or exempted by the Virginia Retail Franchising Act has now been granted an extension of 21 days for their registration or exemption (“or such other time period as may be subsequently ordered by the SCC or the Supreme Court of Virginia”).

South Dakota and  North Dakota advised the International Franchise Association they may work with franchisors on a case by case basis. 

Washington

Process Changes: Washington advised the International Franchise Association that it may be able to work with franchisors on a case by case basis. 

Although not Coronavirus related, Washington announced the following additional changes to its requirements and processes:

·       Updated Addendum. The Securities Division has provided a sample Washington Franchise Agreement Addendum for many years. It updated the Addendum language in light of new legislation prohibiting some noncompetition covenants and non-solicitation agreements (Chapter 49.62 RCW), as well as updates to Franchise Act Interpretive Statement No. 4 (discussed more below). At renewal the Division will request that all franchisors conform its Washington Addenda to the language of the updated addendum. A copy of the updated form is available from the Washington state website.

.        Updated Franchise Interpretive Statement No. 4 – FIS-04. This interpretive statement was updated to clarify the Division’s requirements regarding provisions in franchise agreements setting the site of arbitration, mediation, and/or litigation. A copy of the updated form is available from the Washington state website.

·       Updated Notice of Claim of Exemption from Franchise Registration. The Division has updated the Notice of Claim of Exemption from Franchise Registration for franchisors relying on the exemption from registration for franchisors that meet certain experience and net worth requirements (the “large franchisor” exemption). This form is required to be submitted as a .pdf electronically through the electronic filing system. A copy of the updated form is available from the Washington state website.

Although the registration states are providing limited relief, registration and disclosure rules, including the FTC Franchise Rule still apply. Thus, franchisors with fiscal years that ended on December 31, 2019, will need to update their disclosure documents within 120 days following the end of the its fiscal year. Franchisors should update their franchise disclosure documents (including changes necessitated by the current Coronavirus pandemic) and renew / apply for franchise registrations consistent with their past practices. As required by law and further heightened by the Coronavirus pandemic, franchisors should also plan to re-visit their disclosures, including Items 19, 20 and 21, quarterly or more frequently during the next year and amend the disclosure document as necessary. 

Finally, all franchisors should recognize that they may continue to offer or sell franchises if the transactions are not covered by, or exempt from, the franchise registration and disclosure laws.

Allison David, legal clerk, contributed to this post.