AAFD's Purvin Sees Franchisee Support Growing in 2008

Robert Purvin, Chairman of the American Association of Franchisees and Dealers, gives an interview about trends and events that should concern franchise owners in 2008. Formed in 1992, the AAFD represents more than 50,000 franchised businesses in 50 states and represents more than 100 different franchise systems. Purvin, a franchise attorney by training, sees franchisee-friendly bills proliferating at the state and federal level for the first time in many years, a growing desire by lawmakers to change the ability of franchisors to enforce mandatory arbitration and franchisee's pushing for growth in more independent franchisee associations to represent their needs in 2008.

BMM: What are the major trends that franchisees should keep an eye out for in 2008 and why?  

Purvin: 2008 can potentially be a watershed year for franchisees and prospective franchisees, and for several reasons.

Most obviously, the revised Federal Trade Commission's Franchise Disclosure Rule becomes mandatory in July, 2008, and with it, franchisee associations gain a valuable tool to establish recognition and viability. Franchisee associations may now compel franchisors to disclose their existence and contact information in the franchise disclosure document for their respective franchise systems. This was a provision that was strongly supported by the AAFD and other franchisee advocates, and is expected to be a major boost to the effectiveness of independent FOA's, especially as it increases visibility and legality of such associations.

Otherwise, the FTC Rule represents business as usual for franchise disclosure in states that lack their own franchise disclosure rules. The FTC declined to impose regulations regarding abuse of franchise relationships and continues to limit its focus on pre-sale disclosure. This continues to mean that the FTC Rule provides a safe harbor for franchise systems that are wise enough to fully disclose the harsh details of their franchise offerings, details that may continue unfair provisions routinely included in modern franchise agreements, and a continued willingness of unsophisticated franchisee prospects to sign unfair agreements out of the false belief that they are protected by state and Federal law. The FTC Rule continues to lack any private right of enforcement or any civil remedies.

Expect to see a continuing rise in the number of owners associations, and continuing rights for franchisee associations to have standing to represent their franchisees in court and in the public view.

Hopefully as soon as this year, franchise systems will begin to realize that sophisticated prospects (the kind of prospects that most franchisors would prefer to sell franchises) are staying away from the franchising community due the the growing recognition of the unfairness of most franchise relationships.  Soon the best franchisors will awaken to the fact that better deals will attract better prospects.  We hope that realization will begin to take hold in 2008.

BMM: What major legislation or court cases do you see out there that might impact franchise buyers or existing franchise owners?

Purvin: While it is unlikely that any significant franchising legislation will be enacted in 2008, or that franchisee interests will show a significant willingness to mobilize support for significant legislation, there are signs that franchisee interests will show renewed interest in legislative solutions.

For the first time in several years there appear to be franchisee friendly legislation being introduced in Congress and in select states.  At least one new coalition of franchisee associations has appeared to support legislation. The track record of franchisee associations to mobilize for legislative change has been limited at best, and over the past 50 years there has been little grass roots support from franchised small businesses to actually move legislation. I candidly do not expect this trend to change, although a strong effort for legislative reform would tend to facilitate acceptance of the kind of marketplace solutions that the AAFD continues to support.

The AAFD will continue to support a coalition of associations that are supporting a bill to allow trade associations to offer true group health insurance. Over the past 10 years, healthcare remains the number one requested benefit for AAFD members.

The most interesting franchise relationship bill that the AAFD is following and supporting, is a recent effort to bar mandatory arbitration in most consumer industries, including franchising.  This [The Arbitration Fairness Act] will will not likely become law in 2008, but it shows a growing bipartisan frustration with arbitration as a mandatory tool for dispute resolution. The AAFD is involved in a joint industry effort to evaluate current arbitration practices and to seek more balanced methods of fairly resolving franchisee disputes.

In the courtroom, there are several class action lawsuits that are percolating their way through the court system that will test the standing of franchisee associations to represent their members.  In particular, we are interested in two or three lawsuits that are testing the right of franchisee associations to pursue group arbitration, perhaps the number one complaint about the arbitration of franchisee disputes.

While the AAFD has focused its resources on market driven franchising reform based upon supporting the negotiating authority of trademark specific franchisee associations, and the accreditation of franchise systems that support our vision of Total Quality Franchising, it is incorrect to say that the AAFD isn't active politically.  The AAFD continues to monitor important legislation and litigation, and to take stands of interest to our members--oftentimes, our legislative agenda parallels franchisor interests, as they do with such issues as immigration and minimum wage laws.

BMM: Is this going to be a good year for franchisees in general?

Purvin: While I don't agree that franchising is recession proof, and franchised businesses can be hit hard during recessionary times, historically as the labor market shrinks laid-off workers will look to fulfill lifelong dreams of business ownership.  Franchising tends to show growth during times of recession. I wouldn't expect this year to be much different.  A down season will not bode well for franchisee profitability, but it may, indeed, increase the number of individuals exploring franchising. 

2008 may be the year (at least I hope it will be) that franchisor's wake-up to the fact that there is a reservoir of excellent franchisee candidates that are avoiding franchising because they are intelligent to know that franchise agreements are unfair contracts.  The AAFD is working hard to convince franchise systems that this reservoir of talent can be prospected by franchise systems that are willing to embrace fair and balanced franchise relationship.

BMM: What is your top issue in 2008?

Purvin: The AAFD is about to launch a major effort to identify franchise systems that deserve or are willing to earn AAFD Accreditation.  In essence, AAFD Accredited companies have 'volunteered' by contract to entertain the kind of reforms espoused by recent legislative initiatives. We continue to work with progressive franchise systems who deserve our recognitions as well as trouble franchise systems who look to the AAFD to turn their fortunes from bad to good.  The AAFD will continue to emphasize our dual priorities of building and supporting strong franchisee associations with negotiating leverage, and with identifying franchise systems who embrace the principals of Total Quality Franchising and can earn a place on our pedestal.  The AAFD has a goal of reach 60 accredited brands within the next two to three years.