4 states push to strengthen franchisee rights

Legislation in several states aims to give franchisees a lot more power in their dealings with franchisers.

Lawmakers in Maine, California, Pennsylvania and Massachusetts have introduced bills that would give owners a number of new rights and options—such as allowing them to join and support franchisee associations, and making it easier for them to renew agreements with their franchiser under the current terms.

The most far-reaching bill is Maine's LD 1458, which includes a number of big stipulations—such as letting franchisees close their stores between 10 p.m. and 6 a.m., renew their licenses without an increase in royalties or new fees and set their own prices on products and services.

Ambitious Efforts

To be sure, these bills have a ways to go. Most have been referred to committees and in some cases are being held over until next year. What's more, opponents argue some have only a slim chance of passing.

But some observers say the bills have made much more legislative progress than earlier efforts—and they're pushing for much broader franchisee rights. Part of the reason for the stronger showing is that the bills are backed not just by struggling franchisees with horror stories—as bills in the past often were—but also by successful owners, industry observers say.

"Franchisers have been selling franchises to more sophisticated and wealthy investors, and many franchisees these days own multiple units or even own multiple units across multiple brands," says Kevin Adler , editor of the Franchising Business & Law Alert. "They are demanding what they see as equitable treatment, and if they don't get it, sometimes they are turning to legislative solutions."

Keith Miller , chairman of the Coalition of Franchisee Associations, says profit margins are one of the biggest concerns for this new breed of franchisee. He argues franchisers are increasingly trying to get more revenue out of each store, which means less for owners. These are "franchisees that have worked for years to build their investments and are fearful of those investments being wiped out or reduced in value," he says.

Beyond that, says Mr. Adler, today's franchisees are able to communicate more effectively than they were a decade ago, thanks to the rise in social media and the new prominence of franchisee associations. This makes it easier for them to work together to develop legislation.

Opponents say that these new bills aren't necessary because franchising is already highly regulated by the Federal Trade Commission and state regulations. And, they say, the bills could potentially harm existing franchise relationships.

"Most of this legislation is an attempt to rewrite the contract between the franchisee and franchiser that governs their business relationship and that both parties have entered into," says Steve Caldeira , president and CEO of the International Franchise Association. "Franchisers and franchisees who are upholding the terms of their contracts will unfortunately be negatively affected, as will consumers, as these bills would effectively allow franchisees to avoid contractual requirements while still using the franchise brand."

Unintended Consequences

Some franchisees agree with that assessment of the risks. "Pieces of legislation like these create ambiguity, which results in some franchisees doing things differently than others," says Matthew Patinkin , the co-owner of Double P Corp., a Chicago-based franchisee of multiple specialty food concepts. Inconsistency "tarnishes the brand, which reduces my equity in the business."

Meanwhile, some industry observers argue that such broad bills are a bad idea because franchises are different from other businesses—and lawmakers often don't understand the nuances. "It's always dangerous to use a hammer to kill a flea," says Burton Cohen , a franchise consultant who also lectures on management and strategy for the Kellogg School of Management, "and broad legislation proposed by legislators who have little or no understanding of the franchise business model, and which is intended to apply to all franchise systems in all situations, is very problematic."