A partner in the law firm DLA Phillips Fox in Australia cites Iowa as an example of what happens when a government over-regulates franchisors.
“We have seen the effects of over-regulation in various countries and notably also the US State of Iowa where the franchising sector shrunk substantially and franchisors deliberately avoid franchising into Iowa, resulting in lost contribution to GDP and job creation. Various attempts were even made to have the 1992 Iowa Franchise Act declared unconstitutional as it is considered to unlawfully interfere in contractual relationships,” Conaghan said.
Is Iowa overreaching? You be the judge. You can read more about the drama in Iowa franchise law over the past 15 years here.
Iowa (link to current regulations) has gone to great lengths to protect the franchisee. Below are examples of the protections:
- restrictions on the franchisors ability to refuse a transfer,
- imposes financial liability on franchisors who permits encroachment that adversely impact a franchisee’s sales,
- restrictions on “good cause” for terminating or not renewing the franchise agreement,
- franchisors cannot require franchisees to sue in another state,
- good faith required in honoring the franchise agreement,
- independent sourcing must be permitted,
- very limited non-competes after the franchise agreement is terminated, and
- franchise agreement must apply Iowa law
Some of the current political debate in the United States revolves around regulations, which really means imposing rules on private contracts. Governments must balance regulations with encouraging businesses to operate in your region. In Iowa, many franchisors simply choosing not to do business there.