If your business packages beer, you are almost certainly aware of “franchise” laws, legislation that restricts the ability of brewers to change distributors. Though franchise laws impact small and independent brewers nationwide, misconceptions about the brewer-distributor relationship persist. In this article we highlight five of the biggest myths about franchise law observed by Marc Sorini, Brewers Association (BA) vice president of government affairs, while serving as counsel for small and independent craft brewers for more than two decades.

For a deeper dive into these myths, access to the BA franchise law database, and more, visit Franchise Law Resources. Find links to recent Craft Brewers Conference® (CBC) seminars that explore topics relevant to each myth below.

The Compensation Myth

Most franchise laws restrict the termination of a distributor to “good cause” or “just cause.” This means that to terminate, the distributor should be failing in its obligations to the brewer. However, most distributor changes occur through a negotiated process that involves the payment of fair market value to the terminated distributor in exchange for the release of the brewer’s brands. These two truths appear to fuel a widespread myth that a distributor must be compensated even upon termination for cause.

For more information about terminating distribution agreements, listen to Distributor Partnerships: From Dating to Divorce from CBC 2022.

The Contract Myths

The second and third myths on Marc’s top-five list are related to contractual agreements. The first is that a contract “trumps” the terms of a franchise law. The persistence of this myth traps many unwary small brewers into distribution relationships based on the promise that the brewer can terminate at any time. In reality (with certain exceptions) the provisions of a franchise law cannot be waived by contract.

The converse myth, more common with smaller packaging brewers today, is that the commands of the franchise law render written contracts unnecessary. For starters, most franchise laws permit termination for some type of “cause,” then define cause as the failure of the distributor to comply with the terms imposed on the distributor in its agreement (i.e., contract) with the brewer. And while oral agreements are still contracts, trying to show what a brewer expected of the distributor becomes very difficult in the absence of a written document.

For more information about distribution agreements, listen to Starting Out On the Right Foot: A How-To Guide for Distribution Agreements, a 2022 Collab Hour webinar.

The Oral Myth

The oral myth closely relates to the contract myths above. Sorini shared, “When I ask(ed) clients if they have a contract with a distributor, I often hear(d), ‘No, we don’t have a contract, just a handshake deal.’ Statements like this fail to recognize that any ongoing relationship for the sale of goods (beer) involves a contract. Oral agreements give rise to obligations as surely as a written relationship does.

For more information about negotiating fair distribution contracts, listen to A Brewer, A Distributor, and An Attorney Walk into a Bar…What Could Possibly Go Wrong? from CBC 2023.

The ABC Myth

In the brewing industry, the first (and cheapest) resource for many legal questions is a phone call to the state alcohol control agency. Brewers wisely cultivate friendly relationships with their state regulators, and most state regulators provide free advice on how a brewer can comply with the myriad of alcohol beverage laws that govern this heavily regulated industry. In the case of franchise laws, however, most states leave franchise law disputes to the courts (notable exceptions exist, including Delaware, Georgia, Massachusetts, and Virginia). But in most states, the state regulator has little or no role in franchise law disputes.

For more general information about distribution agreements, listen to Bridging the Gap: The ABCs of Distribution from CBC 2023.