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BOSTON – If anyone on Beacon Hill knows franchising, it would be state senator Brian A. Joyce (D). His district office is located in Canton, Massachusetts, where franchisor Dunkin' Brands Inc. is headquartered. If there are franchisee war stories, Senator Joyce is at ground zero.
State Senator Brian A. Joyce (D) has petitioned for the passage of a bill, which prevents franchisors from encroachment, termination without cause and dealing with franchisees in less than good faith. On June 29 at the outset of a Massachusetts Committee on Community and Small Businesses hearing, Senator Joyce declared to a panel of lawmakers and a filled room of franchise advocates why his fair franchising law is needed in the Commonwealth. "These men and women who work so hard and bring revenue to our state are not sufficiently protected from having their franchise agreements terminated for no obvious or explainable reason: in other words, without good cause."
BMM: Why did you create the fair franchising bill for Massachusetts?
Sen. Joyce: We have a significant number of hardworking men and women who have grown their franchised businesses to their benefit, but also to the benefit of the franchisor, and frankly to the benefit of the taxpayers of Massachusetts. They are creating jobs that an economy so desperately needs. They are helping to drive our economic rebound, which is largely driven by small businesses, and franchised businesses make up a significant portion of small businesses in America and Massachusetts.
So it strikes me as good economic policy and simple fairness to afford some protections to franchisees in Massachusetts. The reality today in Massachusetts is a franchise owner could invest their equity as well as their sweat equity and build something that they would like, not just for themselves, but perhaps also for their children and next generation. But one day the parent company could be sold to a hedge fund or to a foreign investor or simply have a change in policy and decide, "we don't want any franchises any more, we want to have company-owned stores." That franchisee in Massachusetts today would have scant protections.
We want franchisees to invest in their businesses. We want franchisees to invest in Massachusetts. It seems understandable that the franchisee wants some assurance that the franchisor isn't going to take it away from them without good cause.
BMM: Do you think this fair franchising bill will be passed?
Sen. Joyce: I think there is a strong likelihood that this bill will be passed this session. Certainly, I am supportive and determined to pass some measure to provide some help to franchisees. I've heard from all kinds of franchisees. I've heard from folks that have D'Angelo franchises. I've heard from some who have had Auntie Anne's pretzels. I've heard from Dunkin' Donuts franchisees.
I've also heard from folks who have had gas station franchises. I'll give you an example there.
One of my constituents invested in a couple of service stations. The oil company sold its interests in Massachusetts to another company. He was telling me that the company has both raised his rent and significantly raised the cost of gas to him such that he's having such a hard time charging such a high price of gas that he's lost significant business. His competitors can sell gas at a lower price. He indicated to me that his supplier, to whom he is contractually bound to buy gas, is selling gas to corporate-owned service stations at a lower price. That strikes me as patently unfair. He is contractually bound to the franchise agreement and now he is at a competitive disadvantage. His sense is that they might be trying to drive him out.
That just seems patently unfair to me.
I'm certainly sympathetic that there is sanctity to the contract. That is not inconsistent to what we are trying to do here — to have the contract consistent with Massachusetts law so that they are not contracts of adhesion, where one side has no power whatsoever, but should provide safeguards to these hardworking men and women of Massachusetts.
BMM: One predatory franchising issue is hidden kickbacks. That's where franchisors require franchisees to buy goods only from a certain source, and then build in hidden payments to the franchisor, which inflate the cost of goods and supplies to franchisees. Will your bill address this franchise issue?
Sen. Joyce: The bill is a work in progress. The primary concern expressed by franchisees was the potential to have their businesses essentially stripped from them without prior notice or due process in curing without good cause.
BMM: Are you going to define "good cause" for franchise terminations statutorily, or are you going to let case law develop what "good cause" is?
Sen. Joyce: We are still discussing that, actually. I think it is Minnesota that delineates some examples of good cause. My inclination is to delineate some examples of good cause. It's perhaps impossible to provide an exhaustive list, but it does provide at least some direction to a future court that is trying to understand legislative intent.
BMM: Besides Minnesota, what other states that offer fair franchising bills are you looking at to guide your efforts?
Sen. Joyce: We looked at Rhode Island, Connecticut, Wisconsin and Washington State. Iowa state seems to have a very comprehensive franchise law that passed in 1992.
BMM: Is there a lot of support for this bill? Is this bill an important issue?
Sen. Joyce: Frankly, we have a number of important issues before us. We are dealing with the state budget, which is at a bit of an impasse right now between the house and the senate. That's the number one item. Everything else is a distant second.
We are also dealing with health-care cost containment. Just as we were first in the nation in providing universal coverage, we are going to be, I think, the first to develop a health-care cost containment bill, which has gotten a lot of attention.
Those items are going to get more attention than this. Nevertheless, there is a significant level of interest in this bill in the business community and certainly in the franchise community. The franchisors were also represented in today's hearings. I think some written testimony was submitted by the lobbyists for the franchisors. So this is not going to be an easy measure to get passed. There will be significant resistance.
There is definitely some strong interests (groups) that have stood in opposition, which really is one of the reasons why you don't have this legislation in every state in the union. We should have some sort of protection. But I think the trend is growing favorably.