It shall be an unfair or deceptive act or practice or an unfair method of competition and therefore unlawful and a violation of this chapter for any person to sell, rent, or offer to sell to a franchisee any product or service for more than a fair and reasonable price.
One long hot button issue in franchising is charges, profits,
and rebates that franchisors receive from
franchisee purchases. In addition to being
the brand owner, franchisors may also be the supplier of goods or services to
franchisees. Franchisors have the right to be paid for service and value tendered. But on the flip side, exorbitant charges can
render the franchisee unprofitable and uncompetitive in the market place.
Within ever contract, including franchise agreements and
supplier agreements, there is implied a duty
of good faith and fair dealing. This can translate into to not charging unreasonable
fees. The obligation of good faith and
fair dealing is not written in the agreement, but rather is an implied obligation
in every agreement. It is assumed.
Washington state’s franchise law has codified into law the
obligation of good faith and fair dealing.
In pertinent part, the codification
is quoted above. The Washington law says
it is “unfair or deceptive act or practice or an unfair method of competition……to
sell, rent, or offer to sell to a franchisee
any product or service for more than a fair and reasonable price.
A test of what is a fair
and reasonable price was challenged in the case of Brewer v. Money Mailer, LLC.
The court declined
to state a bright line rule about what is an unreasonable price. But did say:
Selling printing services to a franchisee at more than twice what those services cost violates this provision.
ORDER GRANTING IN PART BREWER’S MOTION FOR SUMMARY JUDGMENT – 5
The court’s in its order
granting summary judgment solely looked at the franchisor’s actual cost of
services and the fee charged franchisees.
The court did not, and it is
unknown if the parties present evidence regarding of fair market valve or
competitor pricing for like services. The
court, in hand, disregarded per se the franchisor’s argument that it provided considerable
benefit for the fees charged franchisees.
As a matter of law, huge markups in the price of a product or service that a franchisee is required to purchase from the franchisor are simply not permitted.
The take away is when determining fees charged franchisee. Look at the cost. Irrespective of the benefits bestowed or
competitor pricing, the fees charged franchisee must be reasonable something
less than twice the actual cost.
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Source: franchise blaw