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Ohio Franchise Law Applies to Franchises in Ohio

Ohio Franchise Law Applies to Franchises in Ohio
January 23, 2018 by Christina Laun Fugate, Partner
Whether you’re a franchisor or franchisee, it is important to know whether the Ohio Franchise Act applies to your business. The answer to this question will determine whether the franchisor is required to make certain investment or financial disclosures to the potential franchisee, what terms are allowed in the franchise agreement, and what rights the franchisee has to cancel the franchise agreement.
Ohio has been called the “franchise protection state on steroids.”[1] Accordingly, franchisors have some incentive to draft franchise agreements in a way that avoids Ohio law. However, a recent decision makes it clear that Ohio’s franchise laws apply to any franchise formed in Ohio, even if the franchisor is located in another state.
That case involved four Ohio franchisees and the Zounds Hearing Franchising company. Zounds is located in Arizona. In 2013, it entered into franchise agreements with four Ohio companies. In 2016, after three years of operations, the Ohio franchisees were performing poorly. Two of the Ohio franchises failed.
The Ohio franchisees sued Zounds, claiming the Zounds franchise agreement violated Ohio’s franchise laws. Zounds, however, argued Ohio’s franchise laws did not apply to the franchise agreements. It claimed Arizona law governed, because the franchise agreements at issue contained an Arizona choice-of-law clause. Zounds also argued the franchise agreement required the Ohio franchisees to mediate the case and the Ohio franchisees could not end the mediation and sue Zounds until either Zounds or the mediator consented.
The court rejected Zounds’ argument. It found Ohio’s franchise laws applied to the Zounds’ franchise agreements, even though Zounds was located in Arizona. 
Importantly, the Court found Ohio’s franchise laws override parties’ abilities to contract out of them.  These laws are a fundamental state policy. Accordingly, if you enter into a franchise agreement in Ohio, be prepared to play by Ohio’s rules.
For more information, contact Christina Fugate or another member of our Franchise Team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. 
[1] Zounds Hearing Franchising, LLC v. Bower, 2017 WL 4399487 (D. Ariz. Sept. 19, 2017).

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