Vermont has now joined the ranks of a select number of states that have actively considered and implemented changes to the franchise laws which govern the relationships between brewers and distributors, providing small brewer provisions that recognize the need for greater equity in those relationships.
Vermont House Bill 710, a Vermont Brewers Association-backed effort which provides for written agreements governing the equitable terminations of distribution relationships, has been signed into law by the Governor.
Broadly, the bill stipulates how a small brewer can terminate their relationship with a distributor under several scenarios. “Small brewer” is defined as a brewer (in and out of state) that produces fewer than 50,000 barrels annually and makes up 3% or less of their distributor’s total sales by volume.
- A brewer may terminate their franchise relationship with a distributor pursuant to the terms of a written agreement. If there is a written contract or agreement between the parties and the agreement includes terms relating to termination, the terms of the agreement control.
- If there is not a written agreement with terms relating to termination for good cause, or if the written agreement does not include terms governing (or prohibiting) termination for good cause, the brewer can terminate the relationship for good cause shown pursuant to current law (120 days notice).
- If there is not a written agreement with terms relating to termination for no cause, or if the written agreement does not include terms governing (or prohibiting) termination for no cause, the brewer may terminate for no cause by providing 30 days notice and payment of compensation defined as five times the average annual gross profits earned by the distributor on the sale of the brewer’s products. These provisions are not available to existing franchises until July 1, 2022.
The bill provides that, as of July 1, 2022 all franchise agreements between distributors and small brewers must be in writing and that if the parties to any franchise that is in existence on January 1, 2019 are not able to reach agreement in writing by July 1, 2022, the franchise shall be terminated and the brewer pays the distributor “compensation” as defined.
The Vermont Brewers Association, the Vermont Legislature, and Governor Scott are to be commended for recognizing that business relationships are best crafted cooperatively through contractual negotiation and not in reliance on inflexible statutory provisions enacted decades ago in a very different time.
Small brewers and their distributor partners are just that, equal partners and colleagues working toward the same goal of success. While there are distributors who recognize the value of an equal partnership, the fact remains that true equity cannot be achieved within the framework of most state franchise laws and states need to turn a critical eye on those laws if they truly want to create a level playing field, one that leads to success for all players.