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Recent Revision of Ohio Business Opportunity Law provides new protections for Franchisees

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Ohio’s Business Opportunity Law was recently amended, significantly increasing the rights and remedies of franchise owners. The author of this post was privileged to be a member of the Committee of the Ohio Bar Association that drafted the new law.

No registration or other governmental filing by a franchisor is required in Ohio. However, unlike other states and federal law, the term “business opportunity” applies to most franchises under the Ohio law.

The Ohio law, like several other state laws, gives franchisees the right to sue for violation of disclosure laws without proof of fraud. Federal law does not give an injured franchisee the right to sue, although sometimes franchisees can use disclosure violations as the basis for a fraud claim in state court (fraud claims face various hurdles and can be unsuited to franchise disclosure litigation). A number of exemptions are included in the Ohio law, most notably an exemption for transactions involving larger franchisors (defined as a franchisor with more than $15 million in net worth and at least 25 franchises in place). However, unless an exemption applies, the Ohio law provides purchasers with various remedies for violations of the FTC rule, including rescission, triple damages and attorney fees.

In the past, out-of-state franchisors could avoid the Ohio law by specifying that a different state’s law would apply. A federal court decision had ruled that these “choice of law” provisions would be enforced over conflicting language in the Ohio law. However, the amended law includes language intended to overrule this court decision. As a result, the Ohio law will now apply to the sale of franchises located in Ohio, as well as to the sale of franchises, wherever located, under franchise agreements which specify that Ohio law applies.

Another common feature of franchise agreements is the requirement that disputes be resolved outside Ohio, often by arbitration. The amended law includes language restricting such provisions. While arbitration clauses will presumably still be enforceable, the revised law requires that the disputes be adjudicated inside Ohio.

These protections of the revised Ohio franchise law provide improved benefits and remedies to Ohio citizens, and perhaps our model will be followed in other states.

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Stanley Dub is the principal attorney at Stanley M. Dub Co, a law firm in Cleveland, Ohio, and a member of the AAFD Franchisee LegaLineSM.

One comment

  1. avatar

    As a longtime supporter, I would not want the AAFD to be publishing anything that sounds like an assurance to someone buying a franchise in Ohio that they might not wind up having to arbitrate in Timbuktu, despite the intent of the new law.

    In Illinois our franchise disclosure act prohibits franchisor’s from including out of state choice of forum clauses for litigation but is silent on arbitration when it comes to forum selection. The distinction was based on the belief that the federal arbitration act would preempt any state law that purported to limit the scope of an arbitration clause that parties agreed to in their contract.

    I am delighted to hear that there may be a crack in the fortress whereby states might be able to protect their franchisees from these burdensome clauses that would require the zee to arbitrate in the zor’s home state. And Stan, I certainly hope you are correct in your belief that the new Ohio law will be upheld on this point.

    But, until the issue is settled by the Courts, the AAFD must be clear in publishing to the franchisee community in explaining that the new law is likely to be challenged and that the outcome is not certain. There remains some substantial risk that an Ohio franchisee will be required to arbitrate outside Ohio despite the intent of the new law.

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