Vermont Legislature SmartTranscripts:

[Michael Marcotte (Chair)]: Good morning, everyone. This is the Farmhouse Committee on Commerce and Economic Development. It is Thursday, January at 09:30 in the morning. So we are starting our day this morning to hear h seven thirty three, the regulation of franchise agreements. We have our legislative council, mister Rick Sago, who is going to walk us through, the bill. Morning, Rick. Good morning.

[Rick Segal (Office of Legislative Counsel)]: Rick Segal with the office of legislative council. So as the chair said, h seven thirty three is an act relating to the regulation of franchise agreements. And you may remember H two zero five that had been amended by the committee. H two zero five previously had a provision that would regulate non competes of franchise agreements. I believe now that it's just specific to employment agreements. So this bill, age seventy seven thirty three, does include some noncompete language, but it's actually a much bigger franchise or franchisee regulation bill. This bill would, if it passed, would really kind of require these agreements to be a certain way between franchisors and franchisees to kind of regulate that relationship. It's also somewhat of a rerun from six years ago. 2020, there was a bill similar to this one. I can't remember the number, the bill number, but this is slightly a rerun from several years ago. That bill didn't really go anywhere at the time. So, if I can get started, it's a 22 page bill, not as many definitions as usual for my bills. We'll start with the bottom of page one, defining an agreement not to compete. It's an agreement between a franchisor and a franchisee that restricts the franchisee after separating from the franchisor from operating its business in a certain geographic area for a certain period of time or in any other way that significantly impacts the ability of the franchisee to compete with a franchisor. This is an exact copy of the language in 02/2005 as it pertained to franchise franchisors, franchisees. An agreement not to compete does not include an agreement that prohibits the disclosure of trade secrets or a nondisclosure agreement that protects confidential information that does not constitute a trade secret. Defining franchise, it's the brand name, trademark, or other identified information owned and managed by a franchisor. Franchise agreement is an agreement in which a franchisor grants a franchisee the right to operate a business or to offer, sell, or distribute goods or services identified or associated with a franchise or trademark. Franchise business means a business that has been operated by a franchisee that is subject to a franchise agreement. A franchisee means a person that currently operates or formerly operated a business under a franchise or franchise or brand name, trademark, or other identifying information pursuant to a franchise agreement. The franchisor or the person that sells the right to operate a business to a franchisee pursuant to a franchise agreement. Section 4,052 sets the termination by franchisor arrangements when and how a franchisor can terminate a franchise agreement. Except as otherwise provided in this chapter, no franchisor shall terminate a franchise agreement prior to the expiration of the term except for good cause. Except for subsection c, which lays out termination causes, good cause shall be limited to the failure of the franchisee to substantially comply with the lawful requirements imposed upon the franchisee by the agreement after being given written notice not less than sixty days in advance of the termination and a reasonable opportunity to cure the failure, which should not be less than sixty days after receipt of the notice of noncompliance. So given the franchisee time to comply with what the franchisor deems to be a violation of the franchise agreement. Okay. However, see if during the period when the agreement's in effect, if any of the following events are relevant to the franchise business, immediate notice of termination by the franchisor without an opportunity to cure shall be deemed reasonable. One, the franchisee is the subject of an order for relief in bankruptcy or is judiciously determined to be insolvent or all or a substantial part of the assets are assigned to any creditor or the franchisee admits the franchisee's inability to pay the franchisee's debts as they come due. The franchisee abandons the franchise business by failing to operate the business for five consecutive days during which the franchisee is required to operate the business under the terms of the franchise agreement unless there is fire, flood, earthquake, or similar causes beyond their control. If the franchisor or franchisee agree in writing to terminate, that's enough. If the franchisee makes any material misrepresentation relating to the acquisition of the franchise business or the franchisee engages in conduct that reflects materially and unfavorably upon the operation and reputation of the franchise business. The franchisee fails for a period of ten days after notice notification of noncompliance to comply with any federal, state, or local law regulation, including health, safety, building, labor laws.

[Unidentified Committee Member]: Yeah, back to four. Sure. Makes material, I'm sorry. Oh yeah, relating to acquisition or the franchisee engages in conduct that reflects materially and unfavorably upon the operation and reputation of the franchise business. So I know that there are some franchise businesses that require you to have more Thinking of Chick fil A, I think there's standards for moral, I might be wrong on that, but I'm pretty sure that there's standards for morality. Is that covered in there? Not that we have a Chick fil A in the state of Vermont. We should if you're listening.

[Rick Segal (Office of Legislative Counsel)]: Thoughts? I do miss Chick fil A from Texas. I know.

[Unidentified Committee Member]: I also want to buck these too.

[Rick Segal (Office of Legislative Counsel)]: So to answer your question, you know, materially and unfavorably, it is I've been using this word a lot lately, squishy as far as, you know, if you're if you are a franchisee and you say something that this is not the correct term, defamation, you say something that lowers the reputation of the business. It's got to be something pretty serious. It it it wouldn't just be in the Chick fil A example, something anti Christian or something, you know, something that is against their their values. But you make a point that it's not super clear what the guardrails are here. And would a franchisor be able to terminate a franchise agreement because the franchisee says something that they believe makes my business look unfavorable and reduces the reputation? Probably possibly is my answer. Yeah.

[Unidentified Committee Member]: I'm just thinking that through as in although for that particular I don't even know how they run their stuff, but it just made me think of it. But if a franchisor has a specific We all know that this is what they are, and they change materially. I feel like so I'm just concerned that this would not allow for them to part ways. Know, I I guess is that like that's not From

[Rick Segal (Office of Legislative Counsel)]: the from the franchisor standpoint? Yeah. Well, I think it gives the franchisor pretty pretty lee I mean, is this is so normally the agreement's the agreement, and you don't want them to terminate without cause. Right? So this is giving the franchisor some cause, and the cause is that you're engaging in conduct that makes my business look really bad.

[Unidentified Committee Member]: Really bad. But, again, we're talking about I'm trying to think of a a valid example because I I just can't think of one, but, you know, there might be something that somebody does that it's not I don't know.

[Rick Segal (Office of Legislative Counsel)]: It's open to interpretation to some extent, I guess, what you're grappling with, and it is would be open to a court or a jury to determine was this thing that this franchisee did that reflect materially and unfavorably upon the business, the franchisor?

[Unidentified Committee Member]: That's why I can explain it. Definition of unfavorably though is I I think that's where I'm kinda concerned on, you know, it

[Rick Segal (Office of Legislative Counsel)]: So we talked about number five. Number six, the franchisee, after curing the notice of defect it received in B, engages in the same noncompliance Whether or not such non compliance is corrected in excess of three times per year, that would mean an automatic termination by the franchise or if they want it to be. Seven, the franchisee repeatedly fails to substantially comply with the lawful requirements of the franchise agreement, whether or not corrected after notice. The franchisee or business premises of the franchisee are seized, taken over, or foreclosed by a government official in the exercise of the official's duties or cease taking over or closed by a creditor, etcetera, provided a final judgment exec against the franchisee remains unsatisfied for thirty days unless a other appeal bond has been filed or a levy of execution has been made upon the life license granted by the franchise agreement or upon any property used in the franchise business, and it is not discharged within five days following such levy. The franchisee is convicted of a felony or any other criminal misconduct that is relevant to the operation of the franchise. The franchisee fails to pay any franchise fees or other amounts due to the franchisor or its affiliate not less than ten days after receiving written notice that such fees are overdue. The franchisor is able to meet the burden of proof that the continued operation of the franchise business by the franchisee will result in an immediate danger imminent danger to the public health or safety. Section forty fifty three, inventory after termination or nonrenewal. Except as provided otherwise in the section upon a lawful termination or nonrenewal of a franchise agreement, the franchisor shall purchase from the franchisee at then current market value all inventory supplies, equipment, fixtures, furnishings, and improvements purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee from or to the franchisor or to a supplied approved suppliers and sources that are at the time of the notice of termination nonrenewal in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee pursuant to the section. The section shall not require the franchisor to purchase any personalized items or inventory, supplies, equipment, etcetera, that are not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreements or to which the franchisee at the cessation of operation of the franchise business by the franchisee cannot lawfully or does not grant the franchisor clear title and possession upon the franchisor's payment to the franchisee for the inventory supplies, equipment, fixtures, or furnishings. This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor, which does not include an agreement that is substantially different than the original contract. Also, not does not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise business is located. If the franchisor and franchisee mutually agree writing to terminate or not renew the agreement, and to any inventory supplies, equipment, fixtures, furnishings that are sold by the franchisee between the date of the notice termination or non renewal and the cessation of operation of the franchise business by the franchisee pursuant to the termination or non renewal. Upon the termination or non renewal, a franchisor may offset against the amounts owed to a franchisee under the section any amounts owed by the franchisee to the franchisor if the franchisee agrees to the amount owed or franchisor had received a final adjudication of any amounts owed. K. Non renewal. Advance notice, no franchisor shall fail to renew a franchise agreement unless such franchisor provides the franchisee with written notice of its intention not to renew at least a hundred and eighty days before the termination date of the agreement. And during the hundred eighty days prior to termination of the agreement, the franchisor permits the franchisee to sell the franchisee's business to a purchaser, meeting the franchisor then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, then the current requirements for granting renewal franchises. Or the refusal to renew is not for the purpose of converting the franchisees business premises to operation by employees or agents of the franchisor for such franchisor's own account, provided nothing in this subdivision or in the previous subdivision shall prohibit a franchisor from exercising a right of first refusal to purchase the franchisees business. And termination would not would be permitted pursuant to section 4,052. The franchisee and franchisor agree not to renew the franchise or the franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, provided the franchisor during the period of time after giving notice pursuant to the subsection offers such franchisee a right of first refusal of not less than thirty days of a bona fide offer made by another to purchase such franchisors entry in such premises. In the case of the sale transfer assignment to another person of the franchisor's interest in one or more other controlled marketing premises, such other person in good faith offers the franchisee a franchise on substantially the same terms and conditions currently being offered by such other person to other franchisees, or the franchisor and the franchisee fail to agree to changes or additions to the terms and conditions of the agreement If such changes or additions would result in renewal of the agreement on substantially the same terms and conditions on which the franchisor is then customarily granting renewal franchises, Or if the Franchisor is not then granting a significant number of Renewal Franchises, the terms and conditions on which the Franchisor is then customarily granting new Franchises. Nothing in that subsection shall prohibit a franchisor from offering or agreeing before expiration of the current franchise term to extend the term of the franchise for a limited period in order to satisfy the time of of notice of nonrenewal requirements of this section. By nonrenewal termination by franchisee. A franchisee may terminate a franchise agreement without penalty or fees in the events of changes to the franchise system or the competitive circumstances of the franchise business that would cause substantial negative impact or substantial financial hardship to the franchisee in the operation of the franchise business. Transfer or sale of business by franchisee. Death of the franchisee. No franchisor shall deny the surviving spouse, heirs, or estate of a deceased franchisee the opportunity to participate in the ownership of the franchise under a valid agreement for not less than twelve months after the death of the franchisee or the majority shareholder of the franchisee. During that time, the surviving spouse, heirs, or estate of this deceased

[Unidentified Committee Member]: hold down for a second.

[Rick Segal (Office of Legislative Counsel)]: Duralist shall either satisfy all the then current qualifications for a purchaser of a franchise business or sell, transfer, or assign the franchise to a person that satisfies the franchise or is then current standards for new franchisees. The rights granted pursuant to the section shall be granted subject to the surviving spouse, heirs, or state of the deceased maintaining all standards and obligations of the agreement.

[Unidentified Committee Member (co-sponsor of H.733)]: And we so sorry. I just want to understand this part. So if the franchisee passes during the contract, the surviving spouse can run the franchise or can sell the brand? This seems to me like they have the ability to sell the franchise, but it doesn't say anything about continuing to run it, does it? Or am I it's not?

[Rick Segal (Office of Legislative Counsel)]: Participate in the ownership of the franchise under valid franchise agreement for not less than twelve months after the death.

[Unidentified Committee Member]: Date and time.

[Unidentified Committee Member]: Checks up. Perqualifications.

[Unidentified Committee Member (co-sponsor of H.733)]: Gives them twelve months to sell it.

[Rick Segal (Office of Legislative Counsel)]: Yeah. But they they can also operate it during those twelve months. Then the franchisor cannot terminate or it sounds like even non renew if that twelve months

[Unidentified Committee Member (co-sponsor of H.733)]: Is during that period of time.

[Rick Segal (Office of Legislative Counsel)]: Right. So it sounds like it gives them time to either really free through the agreement once the agreement lapses, or if they can decide to sell the franchise if they choose to do that. That's my reading of it. We can discuss if it needs to be written more clearly.

[Unidentified Committee Member (co-sponsor of H.733)]: I wanted to understand it. That's also my reading of it. Wonder what the franchise source, franchise, yeah, will think about this. Because sometimes you only give a franchise to a person who has certain skills. If those skills are no longer as part of that franchise, that could be a So I'm plotting this as a place where we could have input fossil.

[Unidentified Committee Member]: May I follow-up on that? Can go

[Unidentified Committee Member]: to the chair.

[Unidentified Committee Member]: We have a lot of time. Oh, well, no. That's fine. If we don't have a lot

[Rick Segal (Office of Legislative Counsel)]: of time. Have it out at 10:00. So I do also, we'll be gone right at ten.

[Michael Marcotte (Chair)]: Nope. Big note. Yep.

[Unidentified Committee Member]: She already discussed it, so it doesn't matter.

[Rick Segal (Office of Legislative Counsel)]: Subsection b, freedom to sell. It is unlawful for a franchisor to prevent a franchisee from selling or transferring a franchise all or substantially all all or substantially all of the assets of the franchise business or a controlling or not in the business to another person, provided that the person is qualified under the franchise who are setting existing standards for the approval of new or renewing franchisees. These standards shall be made available and shall be applied consistently. Subdivision two, notwithstanding what I just said, what I just read, a franchisee shall not have the right to sell, transfer, or sign the franchise all or substantially all of the assets of the franchise business or controlling, not controlling interest without the written consent of the franchisor, except that the consent shall not be withheld unless the buyer, transferee, or assignee does not meet the standards for new or renewing franchisees as previously described, or the franchisee and the buyer, transferee, or assignee do not comply with the transfer conditions specified in the franchise agreement. This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise business. All or essentially all are controlling interest after receipt of a bona fide offer from a proposed purchaser to purchase the franchise business, assets, or interest. A franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in a bona fide offer. This section does not require a franchisor to exercise a contractual right of first refusal. Notification of intent to sell the franchisee prior to the sale, assignment, or transfer of a franchise business, etcetera, etcetera, to another person, notify the franchisor of the franchisees intent to sell, transfer, or assign of the of the franchise business. The notice shall be in writing and delivered to the franchisor by business courier or by received mail and include all the following. The proposed transferee's name and address, a copy of all agreements related to the sale, assignment, or transfer of the franchise, the assets of the business, or the interest in the franchise business, the proposed transferee's application for approval to become the successor franchisee, which all forms, financial disclosures, and related information generally utilized by their franchisor in reviewing prospective new franchisees. And if those forms are readily available to or made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver not later than fifteen days after the request. As soon as practicable, after receipt of the application, the franchisor shall notify in writing the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer. If the franchisor's then existing standards for the approval are not readily available to the franchisee, They shall deliver those standards not later than fifteen days after receiving the notification. Approval or disapproval of sale. The franchisor shall not live within sixty days after receipt of all the necessary information and documentation required or as specified by a written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. A proposed sale assignment or transfer shall be deemed approved unless disapproved by the franchisor in the manner provided by the subsection. If the proposed sale assignment or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval. In any action in which the franchisor's disapproval of a sale, assignment, or transfer pursuant to the section as an issue, the reasonableness of the franchisor's decision shall be a question of fact requiring consideration of all circumstances. For purposes of the subsection, the finder of fact may be an arbitrator specified in the franchise agreement or an arbitrator chosen from a list supplied by the American Arbitration Association or another impartial person. Nothing in the subsection shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law. Rights and prohibitions. The following rights and prohibitions govern the relationship between a franchisor and its franchisee. The party shall deal with each other in good faith and in a commercially reasonable manner. The franchisor or franchisee during the sale or establishment of a franchise business shall not misrepresent or fail to disclose any of the following. The prospects or chances for success of the proposed or existing franchise business, the known total investment for such franchise business, or any effort to sell or establish more franchise locations than is reasonable to expect the market for market area for the particular franchise to sustain. It is prohibited and deemed an unfair and deceptive act of practice or an unfair method of competition and a violation of this chapter for a franchisor or an officer, agent, employee, or other representative of a franchisor to directly or indirectly do any of the following. Terminate or fail to renew a franchise agreement in violation of the chapter. Allow a franchise agreement to expire without complying with this chapter, fail to repurchase inventory, supplies, goods, fixtures, and equipment as required by this chapter, violate the section five a of the FTC act 15 USC 45 in connection with this business as a franchisor or an officer agent or other representative thereof. Resort to false or misleading advertising in connection with this business as a franchisor or as an officer agent or other representative of a franchisor. Without prior written disclosure to a franchisee, obtain vendor rebates, kickbacks, or other similar payments from another person with which the franchisee does business or that the franchisee employs on account of or in relation to the transactions between the franchisee, the franchisor, and the other person. Require franchisee to ascend to a release, assignment, novation, waiver, or a stople that would relieve any person for any liability imposed under the chapter, including through the use of a disclaimer or checklist designed to avoid protection under the chapter. Require a franchisee to make any capital expenditure greater than $5,000 without providing a validated business case to the franchisee, showing that such expenditure has a positive return on investment for the franchisee, require a franchisee to purchase or lease goods or services of the franchisor or from approved sources of supply unless and to the extent that the franchisor satisfies the burden of proving that such restrictive purchasing agreements are reasonably necessary for a lawful purpose justified on business grounds and do not substantially affect competition provided that the subdivision does not apply to the initial inventory of the franchise. Discriminate between franchisees in the charges offered or made for goods, services, equipment, rentals, or advertising services, or in any other business dealing unless and to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between the franchisees is reasonable based on franchises granted at materially different times and such discrimination is reasonably related to such difference in time or is based on other proper and justifiable distinctions considering the purposes of this chapter and is not arbitrary provided that nothing in the subdivision precludes negotiation of the terms and conditions of a franchise at the initiative of the franchisees. Sell, rent, or offer to sell to a franchisee any product or service for more than a fair and reasonable price. Obtain money, good services, anything of value, or any other benefit from any other person with which the franchisee does business on account of such business unless such on account of such business unless such benefit is disclosed to the franchisee. Restrict a franchisee from sourcing environmentally conscious products that meet required specifications or products that use environmentally conscious packaging, or fail to make readily available to franchisees without charge true, accurate, and complete copies of all records of marketing, rewards programs, and advertising funds and fees that have been paid by franchisees, vendors, suppliers, and licensees. Franchise agreement provisions. Pricing. A franchisor shall not require a franchisee to sell any product or service for a price at a loss or otherwise not reasonably acceptable to the franchisee. Liquidated damages clauses shall not be enforceable in a case of termination of the franchise agreement by the franchisor. A default under one franchise agreement shall not in of itself constitute a default under another franchise agreement to which the franchisee or an affiliate of the franchisee of the party. No franchisor shall maintain direct or indirect control of the franchisee's employees or of the day to day operation of the franchise business. No renewal of a franchise agreement or a change in operations manual or like policy shall impose a change in the hours of operation in which the franchisee deems that is unprofitable or unsafe to operate or the interferes with a religious holiday. All notices of termination or nonrenewal required by this chapter shall be in writing, shall be posted by registered, certified, or other receipted mail, delivered by telegram, That's all. Okay. Or personally delivered to the franchisee. Shall contain a statement of intent to terminate or not renew the franchise business together with the reasons therefore and the effective date of such termination or non renewal or expiration. Any franchise agreement that differs from the disclosed franchise agreement shall, in totality, have negotiated terms that are to the benefit of the franchisee. Pre dispute mandatory arbitration clauses are forbidden in a franchise agreement. A provision in a franchise agreement restricting venue to a form outside the state is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within the state. No franchise agreement shall place a limitation on claims that is in conflict with existing state law. Any agreement not to compete, including an agreement not to compete contained within a contract or franchise agreement is void and unenforceable. For existing agreements not to compete that violate that subdivision, the franchisor must notify each franchisee that is a party to the agreement that the agreement is not to compete is void and enforceable. Notice shall be in the form of a written individualized communication addressed to the franchisee or former franchisee and shall be delivered to the last known address and email address of the franchisee or former franchisee. If any franchise liability if any franchisor violates any provision of this chapter, a franchisee may bring an action against such franchisor in any court of competent jurisdiction in the state for damages sustained by the franchisee as a consequence of the franchisor's violation together with the actual costs, including reasonable actual attorney's fees, and the franchisee may also be granted injunctive relief against unlawful termination, cancellation, nonrenewal, or any other act or practice prohibited by the chapter. Notwithstanding any term or provision of a franchise agreement to the contrary, the laws of the state shall govern the interpretation of a franchise agreement of a franchise located in the state, court to the state and the federal courts within jurisdiction over cases following the state shall have exclusive jurisdiction with respect to any action brought under this chapter or any action brought by a franchisor concerning a franchise located in the state. And except as express expressly provided here, nothing in the chapter shall abrogate the right of a franchisee to sue under any other law. In the event a franchisor terminates or fails to renew a franchisee in violation of the chapter, the franchisee shall be entitled to receive from the franchisor the fair market value of the franchise business and franchise assets and any other damages caused by the violation of the chapter. The franchisor may offset against any remedies a prior recovery by the franchisee and any sums owed to the franchisor or its subsidiaries by the franchisee pursuant to the franchise agreement or any ancillary agreement. And we have reached the end. The effective date is 07/01/2026.

[Unidentified Committee Member (co-sponsor of H.733)]: I have a question.

[Michael Marcotte (Chair)]: Okay.

[Unidentified Committee Member (co-sponsor of H.733)]: On page 20, where we have any existing agreements to non compete. So can we, is that legal? I'm a co sponsor of this bill. But is it legal for us to say that you have an agreement that has a non compete and we're now avoiding it?

[Rick Segal (Office of Legislative Counsel)]: So this was in the H-two zero five language, and that came up in the H-two zero five discussion. Can you go back in time? So generally speaking, you have the constitution has a contract clause, which says you cannot interfere with the right to contract. However, you can make the case that the the law, even though it is a new law, and it'd be effective after some of these contracts, that the policy of the state is now this. And the parties agreed and there there could be litigation on this. The parties agreed when they made the contract to have a noncompete, and that would be the franchisor's stance. Like, hey. We we negotiated this. This is part of the deal, but there's nothing against the state making this the policy saying that, no. We believe that these are we we'll use the word unconscionable. But whatever the state wants to say is that these agreements were never good in the first place, so we deem them to be not legal even though the parties agreed to it. So to answer your question, it's gray. It's I I'm not gonna say it's unconstitutional to do this, but there would possibly be litigation for franchisors saying that you can't

[Unidentified Committee Member (co-sponsor of H.733)]: L a contract.

[Rick Segal (Office of Legislative Counsel)]: And it would be nullifying, but it would certainly be

[Unidentified Committee Member (co-sponsor of H.733)]: Modifying. Right. Right.

[Michael Marcotte (Chair)]: Yeah.

[Unidentified Committee Member]: Yeah. Discussion in the for the non compete bill was not to be retroactive.

[Unidentified Committee Member (co-sponsor of H.733)]: Right. Right. That was where I thought we ended up, and I feel like this takes us thinking about school consolidation and all of the contracts that are associated with it. Like, I just I'm curious about this on many levels.

[Unidentified Committee Member]: A question or a comment, which is under franchise agreement provisions. So pricing of franchise not required a franchisee to sell any product, surplus at a loss. My understanding is a lot of franchise agreements dictate, Often, they're vertically integrated, so the franchisor is also the supplier to the franchisee and dictates the price at which they're purchasing. So I'm not sure. It's just a question about how do we capture a franchisor can't raise prices. While they're the contract, they must buy the price from the franchisor, and then they have control over what price they sell it to the franchisee. So maybe there's something about market rate pricing, market rate products, or Maybe that covers that, but basically you're saying we can't sell you products so that you lose money?

[Rick Segal (Office of Legislative Counsel)]: Mean, at that last part of the sentence there, are not reasonably acceptable to the franchisee. Pretty powerful for the franchisee to have that language. Right? They could just say, this is not acceptable.

[Unidentified Committee Member]: Yeah. And so then that would be capturing the price that the franchisor is selling product to the franchisee, because the franchisee's gotta resell it or

[Rick Segal (Office of Legislative Counsel)]: Well, I don't know. I can't speak to that. Right? But this would just be that the franchisor saying you can't actually advertise this product for this price for whatever reason. The franchisor deems that to be, you know, that that the franchisee could say, well, this would number one, we wouldn't suffer a loss at this price. Or number two, maybe it's not acceptable for another reason. Maybe there's competition in the in the town and that they don't wanna price that way for whatever reason. Right? So definitely gives the franchisee some leeway to to argue that we don't wanna sell it at this price. Yeah. Yeah. And I I can't speak to the market. You know, that that part of the agreement, that would be out of this

[Unidentified Committee Member]: context. I've give some quick context. I mean, I think Quiznos is what I have in mind, which is which was a

[Unidentified Committee Member (co-sponsor of H.733)]: Sandwich shop.

[Unidentified Committee Member]: Sandwich shop where they overcharged franchisees for supplies. And that was do you remember when they were all sent all these Quiznos everywhere, and then they all went away? It was because they couldn't make money.

[Rick Segal (Office of Legislative Counsel)]: So this wouldn't so make sure I understand. This would not this does not concern that. This would be the the Quiznos franchisee selling sandwiches at a certain price. Like, Quiznos couldn't say you gotta sell the sandwich for $10. It wouldn't be how Quiznos, the franchisor, provides the meats or bread to the franchisee would be, you can't sell that specific

[Unidentified Committee Member]: price.

[Rick Segal (Office of Legislative Counsel)]: Yep. Yep. I don't think this bill speaks to that part of the arrangement.

[Unidentified Committee Member]: Thank you.

[Rick Segal (Office of Legislative Counsel)]: See, Rep Cooper.

[Jonathan Cooper (Member)]: This is more of a, I guess, be a stylistic query. On page 16, line five, the word kickback is used. And I just is that something that ordinarily is is that a statute level word?

[Rick Segal (Office of Legislative Counsel)]: Is that a statute level word? Walt, how would you define a kickback, Brett Cooper?

[Jonathan Cooper (Member)]: I was hoping to not be put on the spot. But I wasn't sure if that's if that's something that is elsewhere in the statutes, then I guess, yes. But it just struck me as it caught my ear as something, you know, as we go through language to sort of unify it where we're not talking about using personal pronouns, etcetera. I just was wondering if that was something that is a standard term. But thank you.

[Rick Segal (Office of Legislative Counsel)]: I think it's a pretty standard business term, a kickback, meaning you get some kind of scratch my back, scratch your back for this this deal. You know, you work with a vendor, and if you buy from this vendor, they give you some kind of discount or some kind of incentive. Right? Certainly, we open to further explaining that or defining that, but I think it's a pretty common business term that is used in that context.

[Michael Marcotte (Chair)]: Thank you, Rick. So we can go off live. We will be so before we go off, just so everyone knows, we're moving down to Room 11. We're meeting with the House Education to John Gray from legislative council go over the statute for the Higher Education Endowment Trust now. So for the next hour, we'll be down in Room 11. We'll be