The Franchisee Bill of Rights
On the subject of “fairness” in franchising, we will try to separate the optimists from the pessimists . Hopefully, we will make an optimist out of even the most cynical readers amongst us.
We begin with a simple question: Which of the following is the most likely to occur first?
a) America’s leading franchisors will voluntarily embrace the “Franchisees’ Bill of Rights” that has been published by the Coalition of Franchisee Associations (see here)
b) The U.S. Congress will pass comprehensive “fair franchising” legislation (or the Federal Trade Commission will enact a new regulation) that effectively implements the Bill of Rights and makes further efforts by franchisee association leaders unnecessary.
c) The U.S. Supreme Court will decide a “fair franchising” case that establishes, once and for all, that contract provisions to which franchisees usually object are “unconscionable” because they “shock the conscience” of the Court.
d) None of the above.
Here’s hoping that you rejected (d), which obviously would be the pessimistic view, and made your selection among (a), (b) and (c). After all, it is pretty clear from medical science that optimists tend to live longer.
And for all of you optimists out there, I predict that the correct answer is (a), that sooner or later (and hopefully sooner) the franchisor community will voluntarily embrace the Bill of Rights, either as a whole or in substantial part.
Freedom of Association
The first of twelve rights that franchisee advocates insist ought to be mandatory for every franchisee is that “A franchisee may freely associate with other franchisees or associations.”
This right deserves to be the first one on anyone’s list, as it strongly evokes the spirit of the First Amendment in the Bill of Rights to the U.S. Constitution, in which every American is guaranteed the freedom of speech and the right to peaceably assemble and to petition the government for a redress of grievances (in addition to providing for the freedom of the press and for religious liberty).
As Americans we sometimes take our fundamental liberties for granted. None of us, I assume, would ever tolerate living in a country in which citizens are denied the right to talk to each other about matters of common interest under the threat of being arrested or worse.
By the same token,why should any franchisee be deprived of the right to speak to other franchisees about matters of common interest and to “peaceably assemble” in an independent association and to “petition” the franchisor to “redress grievances?”
From this perspective, efforts by franchisors to prevent their franchisees from forming independent franchisee associations, which facilitate communications among franchisees and with the franchisor, seem downright un-American. Worse, such efforts often do nothing more than drive the franchisees underground, into anonymous Internet chat rooms and the like, where the things that are said in darkness are usually worse, in the sense of being destructive and not constructive, than anything that is said in the light of day.
To be clear, we are talking about the right of franchisees to form independent associations that are incorporated under state law and have a legal existence independent of the franchisor. Franchisor-sponsored advisory councils may be fine as far as they go, but often they are no substitute for an association that is truly independent.
In its amended franchise rule, the Federal Trade Commission gave the cause of independent franchisee associations a well-needed boost when it provided that franchisors must disclose whether an independent association exists in its system, and on request the franchisor must disclose the contact information for the association as part of Item 20 in the Franchise Disclosure Document. (See 16 CFR 436.5(t)(8)).
The question every franchisee or potential franchisee should be asking is: Do I want to be in business with a franchisor that is hostile to the very basic right of forming an independent association? And by the same token do I want to be in a system with other franchisees that might be too lazy or timid to start one?
Of course, if the answer is that everyone is too busy making tons of money to bother with an association, you might decide to proceed anyway. But history shows that independent associations play a vital role in good times as well as bad. They are a vital ingredient to healthy franchise systems that no franchisee should be without.
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There’s been a lot of negative news these past few weeks related to business lending. You’ve probably heard there’s a credit freeze and you may think that means nobody’s lending. But Don Johnson, owner of Diamond Financial Services, New Jersey, says that’s a misconception. “Our company works with over 25 lenders so we really know what’s going on with the state of SBA and franchise lending. We’re prequalifying a little more carefully, but our success rate is still high. In the media it’s all doom and gloom, but loans are getting approved. You just have to know how to do it. Most people don’t know how to do projections or put together a loan package. Over 80% of loans get declined due to packages that aren’t complete or correct. And the rest is simply not going to the right type of lender. The money is out there, you just have to know where to go.”