Developments are arising with regard to franchising in New York. Some of the franchise news stems from the North American Securities Administrators Association (NASAA), which as you will see below is an organization deeply embedded in the franchising process, and which has traditionally had a unique impact on franchisors.
Let’s review some laws and guidelines that will impact franchisors and franchisees in New York as we approach the end of 2022.
NY Franchise Filing Update
A brief notice on the NY State Attorney General’s website is a big deal for franchisors and their lawyers. Effective Oct. 1, 2022, franchise filings and corresponding fee payments must be submitted through the NASAA Franchise Electronic Filing Depository (FRED) at www.efdnasaa.org.
This will impact franchisors as they prepare their renewals in the first quarter of 2023. Lusthaus Law has already filed several renewal applications on FRED and has found the process to be extremely efficient. Furthermore, this modernization removes the need to print multiple copies and send forms via snail mail. Franchisors should maintain contact with their franchise lawyers to ensure they meet the e-filing requirements and deadlines.
According to the Franchisor & Franchisee webpage on the NY State Attorney General’s website, franchisors will be required to comply with the FRED requirements “unless there is hardship in doing so.” An application for hardship can be submitted in accordance with the instructions on the Franchise Registration Information Sheet.
NYC Pay Transparency Law To Take Effect
NYC-based Franchisors and franchisees should also mark their calendars in connection with certain changes in local laws. For example, on Nov. 1, the NYC Transparency Law goes into effect, which is bound to impact independently operated franchise locations as well as franchisors.
The NYC Transparency Law applies to employers in the Big Apple with at least four employees on their payroll (including the employer). As previously discussed, it will require employers to openly disclose the minimum and maximum salaries for each given position in any advertisement. This means that any position posted – internally or publicly facing – must include a salary range.
The law can impact an employer’s bottom line, as well. Violations may result in paying monetary damages to affected employees and civil penalties of up to $250,000. Franchisees and New York-based franchisors should consult the NYC Human Rights webpage for more information on the new law.
NASAA Launches Updates For 2023
At its annual meeting in September 2022, NASAA adopted policies that could influence the landscape in 2023. The most pressing is a policy addressing franchise questionnaires and acknowledgments, which may set new standards for their proper use.
Effective Jan. 1, 2023, franchisors may have to curb certain questionnaires and acknowledgments in the franchise sales closing process.
According to NASAA, state securities regulators have observed that questionnaires and acknowledgments currently found in some franchise disclosure documents and franchise agreements are inappropriately used to defeat claims of fraud and misrepresentation in the franchise sales process.
NASAA said the objective of the policy is to deter and prevent “unscrupulous” franchisors from taking advantage of franchisees. Its stance is that franchisors should bear the burden of policing their own sales personnel and agents. But some critics believe the policy goes too far – saying that while the intention to root out fraudsters is admirable, it opposes the Federal Trade Commission’s Franchise Rule and could produce roadblocks for both parties at closing.
While this policy is not a law, NASAA influences and establishes guidelines for registration in states like New York. You can visit NASAA.org for more information. The updates from NASAA exemplify why you should consult a New York franchise lawyer to determine if these developments will impact your franchise system.
Contact Lusthaus Law
In addition to the guidelines and updates listed above, remember that Lusthaus Law’s website is a resource for New York franchisors and franchisees. We have published two downloadable and complimentary e-books and our Insights blog is regularly updated to reflect industry trends and recent achievements in client representation.