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Seismic Shift in Franchisees Seeking Balance

The drafters of the bill of rights for franchisees
Drafters of the Bill of Rights for franchisees, Orlando/ bmm

ORLANDO — There is a seismic shift under way in how franchisees approach balance in franchisee/franchisor relationships. It is a multi-pronged strategy headed by the three-year-old Coalition of Franchisee Associations (CFA) that utilizes market forces, collective bargaining and possible legislation.

The start of the shift took place just last month in a dimly lit conference room. Franchisee leaders from some of the country's most recognized brand names convened in one of the many rooms at Marriott's Orlando World Conference Center to hammer out a universal bill of rights draft for franchisees.

It may have a profound effect down the road.

America's franchisees currently face sizable problems. They struggle for the freedom to associate with other owner-operators in independent franchisee associations. Members fear termination or retaliation by a franchisor for hanging out with the wrong crowd. Store owners want territorial protection against a competing company store or a franchise opening next door, causing lost business and turning his store unprofitable. Franchisees also want audited disclosures on vendor kickbacks. Kickbacks from a vendor to a franchisor can significantly raise the price of goods to franchisees, and they are typically undisclosed. They act as a hidden royalty fee. These are a few protections out of 13 in a bill of rights that has been drafted for restaurateurs, hoteliers, convenience store operators, quick printing owners and all manner of franchisees, no matter what the industry.

"The bill of rights was a huge step forward for us," declares Dave Glodowski of the vote in support of the bill at the Orlando meeting. As chairman of the Coalition of Franchisee Associations and himself a multi-unit owner of Hardee's quick service restaurants in Minnesota, Glodowski says that the franchisee coalition has been gaining traction. The CFA already represents store owners in such giant chains as Subway, Burger King, Hardee's, Meineke Car Care, Supercuts, Dunkin' Donuts and others. Last year the Little Caesars franchisee association joined. This year the giant Asian American Hotel Owners Association signed on.

"The bill of rights was a huge step forward for us." - CFA chairman Dave Glodowski

A draft of those rights is slated to be published for public comment and support. The intent is to produce a document that can be updated by amendments as franchising evolves. Old-timers in the industry are able to see the development of years of thought in the bill. The Coalition of Franchisee Associations says that these rights have not been developed in a vacuum. The concepts have been advanced through research, debate and efforts over the last two decades by such franchisee federations as the American Association of Franchisees and Dealers, Asian American Hotel Owners Association, American Franchisee Association and International Association of Franchisees and Dealers.

What is the purpose of the bill of rights?

The head of the lobbying group explains that contracts between franchisors and franchisees were more balanced and fair 30 years ago. "As franchisors become more of legal institutions, franchise agreements have been favoring franchisors to the point where it is now extremely unbalanced," says Glodowski. He acknowledges that franchisor advocates will often say it is a free market and franchisees can simply choose to walk away from abusive franchise agreements. But he points out that this is often not a practical solution. "Franchisees who have been in the system for years and years have to agree to the latest document in order to maintain the franchise moving forward," he states.

The CFA wants franchisees to get their associations to join them in the causes of franchise equity and liberty. It hopes the posting of the universal bill of rights will stimulate a robust discussion from franchisees. For some it may simply result in a better understanding of the franchise environment affecting them.

AAHOA chairman Chandrakant "C.K." Patel is excited about the direction in which the CFA is heading. "We are enthused about the continued development of the universal franchisee bill of rights with the CFA. It will serve as a model for all franchisors, no matter which industry or sector, in dealing fairly with their franchisees," he says.

Glodowski adds, "We have some ideas in these 13 rights that we want to talk about and put in front of the franchisor and ask, 'How do we make the relationship a little more fair, and a little more balanced?'" The CFA hopes to frame a discussion in which franchisee members push their own independent associations to advocate parts of the bill of rights that they feel is necessary in their own agreements with their franchisors.

"There'll be some franchisors who say, 'Absolutely not. Our agreement is what it is, take it or leave it,'" says Glodowski. In that case the coalition wants to weigh those responses before deciding on the next step to take.

Franchisees hope that the bill of rights will provide a framework for discussion, negotiation and alliances. The association plans to approach the International Franchise Association, a lobbying group set up by franchisors that now says it represents the needs of both franchisors and franchisees. Glodowski, both a franchisee and a restaurateur, says, "We need to say this is where franchisees are coming from, can you get on board?" The CFA also plans to approach trade organizations like the National Restaurant Association to solicit their support. "We need to see where the conversation leads," he notes.

Legislation

The coalition, located on K Street in Washington. D.C., is also eyeing state and federal legislation. Glodowski declares, "We will be looking at some of the statutes on the books and how to put this thing together, and even revisit the Coble-Conyers bill (Small Business Franchise Act) that was introduced approximately ten years ago and kind of see if we can pull some of that language together too. And educate legislators on franchisee rights."

AAHOA's Patel thinks his organization can help. "Our combined group will have a stronger position and a recognized voice in Washington, D.C. and in states around the country to call for necessary changes that will have a beneficial impact for many years to come," he says.

"I understand Congressman [Howard] Coble is still around," notes Glodowski with a smile. Representative Coble is the original sponsor of the Small Business Franchise Act, a fair franchising bill that never made it to law. As North Carolina's longest serving Republican congressman, he's been around for some time.

The bill of rights will be presented to members in Washington, D.C. on CFA Day, June 22-23. "I see the June Capitol Hill event as an introduction and the beginning of an education process, a process that could be a year or two years long," says the chair of the CFA. He further explains, "In June this will be our first round in speaking to our legislators about franchisees on some of the issues we face as small business owners."

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