As we head into 2024, we turn our attention to the upcoming franchise renewal season. We have some lessons we thought we would pass along to you in hopes of making your renewal process a bit more seamless this year:
With the status of the joint employment standard still in flux, we recommend taking this opportunity to make sure you have updated your Franchise Disclosure Document (FDD) and franchise agreement to limit joint employer exposure. We also recommend reviewing your operations manual to ensure that you are not unwittingly exposing yourself to a joint employment claim based upon training, software or other services you may provide to your franchisees. Lastly, we suggest an audit of your practices as they relate to field support to ensure that the support is being provided in such a way as to limit potential joint employer exposure.
Leap Year Impact
Who knew that adding one extra day in the year could cause such a fuss?
With 2024 being a leap year, fiscal year end (FYE)-based filing deadlines are moved up one day. For those franchisors wishing to make franchise filings within 90 days of their calendar FYE, that 90-day period ends on a Saturday. Therefore, to stay within this 90-day period and avoid the potential of including unaudited financial statements in their FDDs in certain states, we recommend these franchisors consider submitting renewal filings by Friday March 29th at the latest.
And if dealing with the effects of a leap year was not enough, Friday, March 29 is Good Friday, which means that state offices in North Dakota, Hawaii and Indiana are closed. If you’re filing in any of those states, to be safe we recommend filing on Thursday, March 28.
In the past, Hawaii required franchisors to provide interim unaudited financial statements, in addition to audited financial statements, if they submitted renewal filings more than 90 days after their FYE. In April 2023, however, the Hawaii Commissioner of Securities signed an order which states that the Commissioner will take no action to require unaudited financials, as long as the franchisor’s audited financial statements are current within 120 days of filing. The Commissioner noted that this was in line with the FTC Franchise Rule and other states and did not unduly prejudice consumers.
This is good news for franchisors who submit renewal filings 91 to 120 days after their FYEs and may mean they do not need to prepare and include in their FDDs interim unaudited financial statements.
Minnesota’s New No Poach Law
Effective July 1, 2023, Minnesota enacted a “no poach” statute much like Washington’s, which prohibits and retroactively voids any provision in a franchise agreement that would restrict a franchisee from soliciting or hiring an employee or independent contractor of either the franchisor or another franchisee.
Impacted franchisors are required to 1) amend existing franchise agreements with a no-poach provision to remove any violative provisions, or 2) sign a memorandum with all Minnesota franchisees notifying them of their rights under the law. Additionally, if these provisions have not been deleted from the franchise or other agreements, they must be deleted on a going forward basis.
As we always try to give our clients a little more than they expected, we thought we would provide you with the “Bonus Tips” for a smooth renewal season:
Timing is Everything
If possible, try to file your annual renewal by the third week in March, putting your filing ahead of the long line of those that will be filed at the end of March and in April.
NASAA Statement of Policy
Last year, NASAA’s Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments (NASAA SOP) went into effect and we saw many of the franchise registration states require the inclusion of a provision recommended in the NASAA SOP. Further, some states required the addition of new language on franchisee questionnaires and the deletion of certain acknowledgments from franchise agreements.
While we do not expect significant changes from what the franchise registration states required in 2023 in this regard, it will be important to carry forward any new language that you added to your FDDs in 2023 in response to this issue. Additionally, because some states began to require the NASAA SOP provisions later in the year than other states, you should make sure that you are aware of the most-current requirements for each state.
We hope 2024 is off to a great start and look forward to working with you. As always, please feel free to reach out with any questions.