New Jersey franchise termination law: 60 days' notice, and who is covered

What the New Jersey franchise act says about good cause and 60 days' written notice, the coverage tests that decide whether it applies, and remedies.

Read from a mirror of the statute (Justia's reproduction of N.J.S.A. 56:10; the official New Jersey legislature site could not be reached and the mirror showed no currency date). Check the official text before relying on any detail here.

New Jersey's act makes it a violation for a franchisor to terminate, cancel or fail to renew a franchise without good cause, and limits good cause to the franchisee's failure to substantially comply with the requirements imposed by the franchise (N.J.S.A. 56:10-5). The franchisor must first give written notice setting out all the reasons at least 60 days in advance. Section 56:10-5 as read contains no cure period. This page does not state one, because the statute text read does not.

Short-notice exceptions

Two grounds shorten the 60 days. For voluntary abandonment, notice may be given 15 days in advance. For a conviction of the franchisee of an indictable offense directly related to the business, termination may be effective immediately on delivery and receipt of written notice.

Failure to renew uses the same notice rule: written notice of all the reasons for the intent not to renew, 60 days in advance, and good cause. The sections read (56:10-3 to 56:10-12) contain no repurchase or compensation requirement on non-renewal. See franchise non-renewal explained for how non-renewal differs from termination.

The act only reaches some franchises

Coverage is the first question in New Jersey, because the act applies only if three conditions are met (56:10-4). The statute's test is that the franchise contemplates or requires the franchisee to establish or maintain a place of business in New Jersey; that gross sales of products or services between franchisor and franchisee covered by the franchise exceeded $35,000 in the 12 months before suit; and that more than 20 percent of the franchisee's gross sales are intended to be or are derived from the franchise. New-vehicle franchises are covered by a separate clause that needs only the New Jersey place of business.

The statute defines a franchise as a written arrangement, for a definite or indefinite period, in which one person grants another a license to use a trade name, trade mark, service mark or related characteristics, with a community of interest in marketing goods or services (56:10-3). Whether a reader's franchise meets these tests is something the reader or a New Jersey lawyer must check against the agreement and the sales figures. This page gives no verdict. If the act does not apply, other sources of rights may still matter; see state franchise relationship laws.

Remedies

A franchisee may bring an action in the Superior Court of New Jersey to recover damages sustained by reason of a violation and, where appropriate, injunctive relief. A successful franchisee is also entitled to costs including reasonable attorney's fees (56:10-10). No limitation period appears in the sections read, and this page has not confirmed whether one applies.

The franchisor has a stated defense. It is a defense to an action under the act if the franchisee failed to substantially comply with requirements imposed by the franchise and other agreements ancillary or collateral to it (56:10-9). That is why the reasons written in a notice, and the franchisee's record on them, matter.

Waivers and forum clauses

Section 56:10-7(a) makes it a violation to require a franchisee, when entering the franchise arrangement, to assent to a release, assignment, novation, waiver or estoppel that would relieve any person of liability under the act. The section as read has no express forum-selection or choice-of-law provision, so this page does not say how the act treats those clauses. See forum-selection clauses.

Questions to look for in your own notice and agreement

Does the notice state all the reasons, in writing, and how many days ahead it says termination takes effect?
Does it claim abandonment or a conviction, the two grounds with shorter notice?
Does the agreement require a place of business in New Jersey?
What were gross sales between you and the franchisor in the 12 months before any suit, and what share of your sales comes from the franchise?
Did you sign a release or waiver when you entered the agreement?
Does the notice offer any cure period under the agreement, even though the statute text read names none?