Don Sniegowski of Blue MauMau writes that an investment protection act for franchise owners, House Bill 1620, is being proposed in Pennsylvania. Franchisee associations are asking for support from Pennsylvania’s franchise owners. The act aims to establish remedies and penalties for franchise owners experiencing abusive franchising practices. The bill would create a fiduciary responsibility of a franchisor to its franchised establishments as well as create a statutory duty of good faith.
It is sponsored by a former Quiznos franchise owner, house representative Peter Daley (D).
House Bill 1620 is scheduled for hearing at 9:30 a.m. on November 19 at the Capitol Building in Harrisburg, Pennsylvania. Those seeking to support and testify can reach out to their independent franchisee association.
“Franchisees have continued to lose rights, and will continue to do so if they don’t speak up,” says Keith Miller, chairman of the Washington-based Coalition of Franchisee Associations (CFA). Miller, who owns several sandwich shops around Sacramento, California, says: “It is the franchisees that have invested in their local communities, providing jobs to the residents.” The CFA is just a few years old but already represents franchisee associations of some of the country’s top franchise chains – Subway, Burger King, Meineke and others. It has supported franchisee protection bills in California, Maine and Massachusetts.
Miller adds, “This is all about franchisees protecting their investments and being treated like co-investors of their brands, which they are.”
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MFOA members,
The challenge with this legislation is that it too broad, and many of the clauses are out of date and no longer necessary, the legislation makes an attempt to regulate the entire relationship between the franchisor and the franchisee. It would be more effective to pass key provisions that help protect the franchise owners ability to build, harvest and perpetuate their hard earned equity.
Here are the clauses in the Pennsylvania Legislation that we think are pertinent:
1. Judicial forum.–A provision in a franchise contract which obligates a franchisee to mediate, arbitrate or litigate a claim or controversy under the franchise contract in a forum outside the state in which the franchised business is located shall be deemed to be in violation of this chapter and void.
This clause is a game changer unto itself. Franchisors commonly use out of state venue to make it more difficult and more expensive for a franchise owner to seek dispute resolution.
2. Trade associations.–(1) A franchisor may not do any of the following:(i) Prohibit a franchisee from joining a trade association. (ii) Retaliate or discriminate against a franchisee for joining a trade association. (2) A trade association of franchisees shall not be subject to any applicable antitrust law of this Commonwealth.
Freedom of association is a right all Americans share. Franchise owners should not be denied or retaliated against for associating with other franchise owners.
3. Termination. (a) Good cause.–A franchisor may not terminate a franchise contract or substantially change the competitive circumstances of the franchise prior to the expiration of its terms except for good cause which is:(1) based on a legitimate and good faith business reason; and (2) not arbitrary or capricious under practices of and
the requirements imposed by the franchisor in other similar circumstances. (b) Obligations.–Prior to termination under this section, a franchisor must do all of the following: (1) Specify the precise basis for the proposed termination. This paragraph includes a description of the material terms of the franchise contract with which the
franchisee is not in compliance. (2) Except as set forth in subsection (c), provide to the franchisee a reasonable period of time, of at least 30 days but not more than 90 days, to: (i) cure nonfinancial events of default; and (ii) pay money due to the franchisor or its affiliate.
90 Days notice to cure offers the franchise owner enough time to cure the default, prior to termination.
Noticeably missing are reasonable rights for the franchise owner to pass their franchise to a acceptable and suitable family member, allow that franchise owner the ability to do estate planning.
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