Protecting, Promoting and Enhancing Franchising in All 50 States
Last month, the Maine legislature held a hearing on so-called “Fair Franchising” legislation. This legislation, like others, opens up a Pandora’s Box of ambiguity in contract terms that threatens the basic and proven tenets of the franchise business model. Under the proposed law, franchisors could not enforce “Brand Standards” that provide quality control and a consistent experience to consumers. Furthermore, legal bills would pile up and franchisors and franchisees would be spending more time in court and less time focused on growing their businesses. Many lawmakers do not understand the franchise business model and the contractual nature of the relationship between the franchisee and franchisor.
Given there is a level of education that needs to be consistently achieved, and a constant amount of turnover taking place in state capitals across the country, beginning next month, IFA will be doubling-down its work to educate lawmakers in Maine and other states about the contributions franchising makes to their economies, and how franchise business works.
At the end of the day, bills like the Maine proposal would harm the franchise industry, and would create further government regulation of franchising. The word “further” is a key point here, as the franchise 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.
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 a majority of franchise systems to resolve issues with franchisors. 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. 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. We look forward to launching our campaign to educate lawmakers about the benefits of franchising to their communities and economies, as well as the public, prospective franchisees and investors about the basic tenets of the model, and the safeguards in place to protect them under current law before getting into franchising. I hope you will join us in telling your story about what franchising has done for you and your family.