The slippery slope of government intruding on contracts in franchising…and beyond

 

 

This week, Maine is set to hold a hearing on so-called “Fair Franchising” legislation (LD 1458). This legislation, like many others, opens up a Pandora’s Box of ambiguity in contract terms that threaten the basic and proven tenets of the franchise business model, which is all about maintaining the brand, and would leave both the franchisee and the franchisor liable for potential litigation down the road.

The result?  More franchisors and franchisees will be fighting lawsuits versus working together to grow their businesses, add jobs and make the U.S. economy stronger.  Meanwhile, consumers would have a less consistent experience at franchise locations.

The International Franchise Association is working to educate lawmakers in Maine (and elsewhere) about why LD 1458 has damaging provisions that would harm the franchising industry and the 74,100 jobs it supports at 3,674 franchised locations in Maine, which pump $7.4 billion annually into the Maine economy.  Now is a good time to remind folks why IFA is fundamentally opposed to further government regulation of franchising.  The word “further” is a key point here, as the franchising industry is already highly regulated by government at both the state and federal levels, by commercial contract law, state investment law and nationally by the Federal Trade Commission.  Additional regulation is not only bad for business, but it’s bad for the free enterprise, market-driven system that our great nation was founded upon.

To be sure, going into business is inherently risky.  However, without risk, there would be no opportunity for success.  When a person starts a business of any kind, there is a risk of failure, and there is perhaps a greater risk that things won’t work out exactly as planned or envisioned.  Is that fair?  One could argue that it depends on your perspective.

With franchising, due to the contractual nature of the model, there are adequate opportunities for both parties to assess through due diligence the risk before a contract is executed.  The franchisor can evaluate the prospective franchisee and ask questions about if he or she is financially qualified, will be a good operator, and will follow the franchisor’s operating system.  The franchisee gets a detailed disclosure document with information about the franchisor, its business history, and its financials.  The franchise contract spells out the obligation of both parties to each other for the term of the agreement.  At the end of the day, both the franchisor and franchisee can make the decision to sign the agreement or not.

So what are some of the consequences of these so-called Fair Franchise bills?  With regard to Maine, there are several provisions that are very problematic and damaging to the franchise industry.  For instance, franchisors could not terminate, cancel, or fail to renew franchisees for refusing to take part in promotional campaigns for the products or services of the franchise that promote profitability.  That means non-compliant franchisees could benefit from advertising funds contributed by other franchisees who are following the system.  Franchisees also would be exempt from selling approved products from approved suppliers, which could jeopardize consistency and quality affecting the integrity of the brand.  We hear from franchisees that they want the brand protected as much if not more than the franchisors as it has a direct impact on their success.  These negative consequences hurt both the franchisor and franchisees.

In most cases, the root cause of tensions in franchise relationships is due to communication and transparency breakdowns.  Franchisees who feel they are being treated unfairly are encouraged to leverage the many mechanisms in place within the overwhelming majority of franchise systems to work together with the franchisor to resolve issues.  Franchisors ought to be transparent and consult with their franchisees when implementing a new relationship with a vendor, or implementing a new policy across a system and show franchisees why it will ultimately help them.

Franchising works when franchisees are profitable.  If franchisees don’t make money, franchisors don’t grow their system, don’t expand their royalties, and they certainly don’t create the jobs this country desperately needs.  In most systems, communication is very good between franchisees and franchisors.  IFA encourages all of its members to abide by its Code of Ethics, and while not a self-governing body, we believe the best course of action when tensions or disputes arise is through a private dispute resolution, before any legal action is taken.

An IFA-commissioned task force of leading franchisees and franchisors formed last fall is working toward the completion of a core set of principles that it believes franchise businesses should abide by to stave off conflict.  Fundamentally, their intention is to avoid conflict from the get-go by promoting transparency in franchise agreements and trust in franchise relationships.  If things do go wrong, mechanisms should be in place that are understood at the beginning of the contract phase by both parties to address the concerns.

IFA will continue to work to identify best practices to better the industry.  Litigation should always be a last course of action.  Government intrusion in a private right to contract is unnecessary, and will only result in unintended consequences for both franchisors and franchisees.

For more information about the consequences this legislation could have on the economy in Maine, click here

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FranTech Technology Toolkit

The IFA FranTech Toolkit is designed to help marketing, communications and information technology franchise professionals navigate the maze of digital marketing and technology solutions available to franchises today.

Find eight different ways that technology is helping to improve efficiencies and positively impact bottom lines.  Topics include a localizing your email marketing strategy; social, local and mobile marketing changes everything and online marketing.  This special advertising section is essential reading for your next strategy session.

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Franchise Digital Marketing & Technology in the Spotlight

IFA’s FranTech 2014: Digital Marketing & Technology Best Practices for Franchising, is scheduled April 10 and 11 in Denver.  Featured experts will examine how you can capitalize on new digital communications platforms and technologies to take your business to the next level. We will bring together leading experts in cloud computing, security, mobile marketing, lead generation and much more. Register now.

Benetrends Offers IFA Members Access to New Development Fund to Fuel Expansion

Access to capital is expected to continue to be a challenge for the next few years, ultimately affecting franchise expansion. But a new $100 million fund from Benetrends is helping to fuel the industry’s growth by offering International Franchise Association franchisor members direct access to capital for qualified applicants to develop new locations or to purchase their first franchise.

“Part of ensuring sustained franchise growth across the country includes offering access to strong, franchise-focused lending programs such as Benetrends new $100 million fund,” said Steve Caldeira, CFE, IFA president and CEO. “In doing so, we are providing both existing and prospective franchisees with the tools and financial resources they will need for long-term growth and success.”

Hand & Stone, a rapidly growing spa franchise, is the first brand to participate, receiving $10 million in initial capital to assist with its growth.

“Benetrends is excited to now provide franchisors and their franchisees access to the critical funding needed to expand their current operations or purchase their first franchise,” said Rocco Fiorentino, CFE, president & CEO, Benetrends, Inc. “We’re pleased to award Hand & Stone the first $10 million from the new fund as they look to meet their future development needs following their record-setting growth in 2013.”

 

NLRB Allows Deadline to Pass, Will Not Challenge Employee Rights Poster Ruling

Last May, the U.S. Court of Appeals for the D.C. Circuit ruled that the National Labor Relations Board (NLRB) had overstepped its authority and infringed upon employers’ free speech rights when it issued a regulation requiring employers to put up a poster in workplaces with an unbalanced and biased overview of employee rights under the National Labor Relations Act. The employer community prevailed in this suit, brought by the National Association of Manufacturers and the Coalition for a Democratic Workplace (CDW). It also prevailed in a suit brought by the U.S. Chamber of Commerce, in which the U.S. Court of Appeals for the Fourth Circuit denied the Board’s petition to reconsider its decision that the NLRB lacked the authority to require the poster.

Last Friday, the deadline for the NLRB to petition the U.S. Supreme Court to review the DC Circuit’s decision passed, effectively ending the debate on the issue that sparked outrage from the employer community.

“The IFA is pleased that the NLRB has declined to challenge the appeals court’s decision to invalidate the employee rights poster requirement,” IFA President & CEO Steve Caldeira said in a statement. “The NLRB was wise not to appeal a decision that swiftly and unambiguously rejected the Board’s aggressive overstepping of its authority in requiring an unbalanced workers’ rights notice that deprives employers of their free speech rights and misguides the workers it was designed to inform.”

Although the employer community is still at odds with the NLRB over other significant regulations and decisions, it appears that the threat of the employee rights poster has been neutralized. IFA remains committed in its advocacy for workforce policies that benefit both workers and employers, and stands prepared to protect the franchise business model from such ill-conceived and damaging labor regulations as those promulgated by the NLRB.

 

 

IFA Announces Partnership with New England Franchise Association

The International Franchise Association announced that the New England Franchise Association (NEFA) is now an affiliate of IFA’s Franchise Business Network (FBN). NEFA supports and promotes franchising within the six New England states by bringing franchise executives, franchisees and suppliers together to exchange ideas and build relationships. This partnership strengthens local business ties across the New England franchise community, in addition to expanding IFA’s FBN.

“We are pleased to welcome IFA’s new partnership with the NEFA. Together, we will be able to strengthen grassroots political involvement in the New England franchise community,” said IFA President & CEO Steve Caldeira. “Through our collective mission, we will also bring unique networking opportunities to local franchise businesses at a time of continued economic and public policy uncertainty.”

The FBN meetings are grassroots networking opportunities for the franchise community. These regional programs facilitate networking with others in the franchise community, meeting potential customers and making new business contacts. Bringing local business owners together on a regular basis to create opportunities and offer affordable educational programs, participants are able to take advantage of educational programs and legislative information made available to them at no charge, except for the cost of meals.

New England franchises contribute over $70 billion dollars annually, through 32,000 franchise establishments and over 750,000 jobs. “Working with the IFA presents the opportunity to broaden franchise relationships in New England and surrounding areas,” said NEFA President, Murray Vetstein. “IFA’s FBN hosts an extensive network of franchise industry leaders. Through our partnership we will foster communication, learning and best practices by growing franchise relationships.”

For more information on IFA’s FBN, please click here.

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