Companies in Washington sometimes unknowingly enter business relationships that constitute franchises under state law. Whether a franchise is offered intentionally or not, it must be registered and comply with franchise requirements to avoid civil penalties and liability. However, in some cases, the franchise transaction may qualify for an exemption from state registration requirements.
A franchise lawyer could review business agreements to determine whether Washington franchise law and registration provisions apply in that business’s situation. Franchise law is complicated, so assistance from a knowledgeable legal advocate can help franchisors avoid mistakes that could prove quite costly.
Wash. Rev. Code §19.100.060 requires franchisors to file registration documents at least 15 business days before offering a franchise for sale. Earlier filing is recommended to allow time for amendment after the documents are analyzed.
Franchisors should be prepared to file the Washington Franchise Registration Application which includes:
In addition, the franchisor must a copy of the Franchise Disclosure Document (FDD) and a check for $600 payable to the Washington State Treasurer to cover the initial franchise registration fee. The fee may also be paid online.
Other required information includes a consent from the accountants to use audited financial statements prepared for the franchisor, advertising used in connection with the sale of the franchise, and a Salesman Disclosure Form for each director, employee, or officer who will be selling franchises. Registration information should be submitted through the online E-File System (https://dfi.wa.gov/franchises/franchise-electronic-filing-system), although it may also be possible to address correspondence to the Washington State Department of Financial Institutions Division of Securities, P.O. Box 41200, Olympia, WA 98504-1200.
A renewal of an existing franchise registration will require re-submitting many of the original filing documents no less than 15 days before one year after the official date of registration with Washington. There is a $100 renewal fee that must also be sent in. Failure to comply with the renewal guidelines within the stated timeframe may result in penalties or the franchisor having to re-register their franchise as if it were new, paying the larger original filing fee.
The FDD is one of the most important components for filing a request to register a franchise in Washington. Both state and federal laws contain detailed regulations specifying what information must be included in the disclosure document and how that information should be presented.
Franchisors who do business in other states may have an FDD prepared elsewhere. However, if they do not amend the FDD to comply with Washington requirements, they must include the state-specific Washington Addendum. The FDD should include all agreements to be proposed to franchisees and financial statements should be audited. In some cases, the franchisor may require filing of a Franchise Impound Agreement or a Guarantee of Performance.
Franchisors in Washington need to comply with numerous state and federal laws and regulations, and they must be aware of how the Department of Financial Institutions has interpreted various provisions. The Washington Franchise Investment Protection Act is key among these laws, but the statute is supplemented by regulations such as the Washington Administrative Code provision WAC 460-80-110 requiring applications for renewal, registration, or amendment of a franchise to be filed electronically.
Documents related to selling a franchise must include both written and oral agreements that may be either express or implied. If someone pays or agrees to pay some type of franchise fee to offer goods or services under a marketing plan provided by another and using a symbol or trademark of the other, then that arrangement would be considered a franchise under Washington statute.
The State of Washington also has unique regulations on competitive activities. In 2019, Washington’s legislature enacted an act that made most non-competition covenants invalid. Additionally, Washington has a law that prohibits non-solicitation agreements in franchise agreements. If a franchisor includes a non-solicitation agreement in its franchise agreement in Washington, the franchisor could face severe penalties and legal issues. Our franchise attorneys regularly counsel franchisors regarding these nuances and how to best address them before filing franchise registration applications with the State of Washington.
If a franchisor fails to comply with registration requirements or commits any action considered unfair or deceptive, Washington law gives the franchisee the right to sue for damages. The franchisor may also be subjected to fines and other adverse consequences. These risks are why it is essential to follow Washington franchise law and registration obligations precisely, and many franchisors find it easiest to do this by working with an experienced and dedicated franchise legal team. To get your franchise system off the ground and take your business to the next level, schedule a consultation with a seasoned franchisor lawyer today.