Arbitrating a Franchise Dispute Into the Forum of One's Choice

Forty-four years ago this month, the Wall Street Journal ran an article entitled “Many Franchise Firms Fall on Hard Times After 15-Year Boom.” Although formal franchising has existed in this country since the mid-1800s, when Albert Singer began to sell his famous sewing machine through franchisees, it was not until the 1950s and 1960s that franchising, largely aided by President Eisenhower’s interstate highway system, began to explode in popularity. During that time, hundreds of new franchising systems were developed as our country began to recognize the value of identifiable brands being used nationwide. However, the franchising bubble of the 1950s and ’60s, once seen as the savior of the small businessman, had essentially popped as the 1970s rolled in. As one franchise system after another began to collapse, the clear disparity between the bargaining power of franchisors and franchisees became readily apparent. Indeed, while the corporate franchisors would take the franchise fees reaped from their failed ventures and move on to the next investment, the individual franchisees were often left with nothing, having invested a lifetime of savings for the failed opportunity.

Not surprisingly, Congress was unable to enact legislation to address many of the perceived issues with franchising, leaving the process of franchise regulation to the states to work out. In 1971, New Jersey became one of the first states to enact comprehensive franchise practices legislation with the adoption of the New Jersey Franchise Practices Act (NJFPA), N.J.S.A. 56:10-1 et seq. The NJFPA reflects the New Jersey Legislature’s strong intent to shield franchisees against abuses at the hands of franchisors with superior bargaining power by prohibiting the arbitrary and capricious cancellation of franchises. Case law interpreting the NJFPA has almost uniformly done so with an eye toward the protection of franchisees.