NORTH DAKOTA’S FRANCHISOR LIMITATIONS

WRITER: PETER W. ZUGER

In other states, franchisors are given a great amount of latitude when drafting franchise agreements, often incorporating very favorable contractual provisions in their agreements with franchisees. In North Dakota, however, franchisors are limited in how they may draft their franchise agreements. The following contractual provisions may not be used in North Dakota because they have been deemed unfair, unjust, or inequitable under North Dakota law:

1) covenants restricting a franchisee’s ability to compete, without further disclosing that the covenants are subject to North Dakota’s law relating to restrictive covenants;

2) agreements requiring a franchisee to submit to arbitration in a place that is remote from the franchisee’s business;

3) restriction clauses requiring a franchisee in North Dakota to submit to jurisdiction outside of North Dakota;

4) any clause requiring a North Dakota franchisee to consent to liquidated damages or termination penalty;

5) franchise agreements providing that the agreements are to be governed by any law other than the law of North Dakota;

6) any provision requiring a North Dakota franchisee to waive the right to a jury trial;

7) any provision requiring a North Dakota franchisee to waive the ability to recover punitive damages in a dispute between the franchisor and franchisee;

8) any agreement requiring a franchisee to sign a general release at the time the franchise agreement is renewed;

9) any franchise agreement providing for a time limit other than the North Dakota statute of limitations for bringing a claim relating to the franchise agreement;

10) any franchise agreement requiring a franchisee to pay costs and expenses incurred by the franchisor in enforcing the franchise agreement.

North Dakota precludes the above restrictions because the Securities Commissioner seeks to prevent franchisors from acting in any way that is unfair, unjust, or inequitable to franchisees. Accordingly, potential franchisor abuses have been curbed, and franchisors are required to act fairly in their dealings with franchisees in North Dakota.

This article was written and prepared by Peter Zuger, an attorney with the Serkland Law Firm in Fargo, North Dakota. For more information, call 232-8957, email at pzuger@serklandlaw.com or visit www.serklandlaw.com.

Peter Zuger was born and raised in Bismarck, North Dakota. He attended the University of Mary in Bismarck, where he graduated in 2003. He went on to receive his J.D. degree from the University of North Dakota School of Law in 2008. While in law school, Mr. Zuger was a member of the Board of Editors for the North Dakota Law Review, won UND’s Moot Court and Mock Trial competitions, and was a semi-finalist in a regional trial competition hosted by the American College of Trial Lawyers. After law school, Mr. Zuger served as a law clerk for the South Central Judicial District in Bismarck, North Dakota. Mr. Zuger joined the Serkland Law Firm in 2009. Mr. Zuger’s practice areas include commercial litigation, shareholder disputes, insurance defense litigation, legal malpractice defense, products liability litigation, plaintiff’s personal injury litigation, banking and creditor’s rights, and a variety of other litigation areas