Understand Relevant State Law When Starting a Franchise

A recent case highlights a significant advantage one state, New Jersey, gives its franchisees over its sister state, Pennsylvania. In New Jersey, all contracts (including Franchise Agreements) are subject to implied covenants of 'good faith' and 'fair dealing.' This means that a franchisor's conduct in performing its duties under the franchise agreements (such as training, advertising, representations relating to build-out costs, etc.) are subject to a higher standard than simply what is actually written in the agreements. For example, if a New Jersey franchisor states that it will use its 'best efforts' to obtain an appropriate location for a franchisee, those 'best efforts' will be judged on a 'good faith and fair dealing' standard. In contrast, many Pennsylvania franchisees may be surprised that there is no 'good faith and fair dealing' requirement in Pennsylvania regarding a franchisor's performance of its obligations under the franchise agreement. This fact has been confirmed recently in Keshock v. Carousel Sys., Inc., No. 04-758, 2005 WL 1198867, which specifically addresses the good faith and fair dealing concepts as they apply to franchisees.