IFA Successfully Lobbies Rhode Island To Change Franchise Law

PROVIDENCE, Rhode Island (Blue MauMau) - The International Franchise Association has been successful in its attempts to water down the Rhode Island Fair Dealership Act that was enacted in May of last year to protect franchise owners from problem franchisors. State Senator Daniel Connors (D) sponsored and helped the amendments pass both chambers. The new act is expected to be signed by Governor Donald Carcieri (R) later this week.

The Rhode Island Fair Dealership Act (pdf), the first state law of its kind since Iowa passed a fair franchise law in 1992, has several sections that the IFA targeted for change. Franchisors had been required to provide Rhode Island franchisees and dealers (a type of franchise owner) with a 90-day written notice before termination, cancellation or nonrenewal of a franchise license and at least 60 days to cure or fix nonconformance to a franchise’s (dealership’s) operating standards, unless it is a health problem, in which case the franchise owner or dealer has only 24 hours to cure it.

The new amendment (pdf) that the IFA pushed shows such state requirements completely crossed out. However, according to the IFA Insider newsletter, the law will now require "60 days written notice for termination, cancellation or non-renewal" of a franchise agreement and 30 days in which to cure any nonconformance issues. These new figures have been whittled down 30 days from what they had been.

Despite lobbying efforts and the successful passing of the amendment, the Rhode Island Dealership Act has remained largely intact.

David French, Vice President of Government Relations for the IFA, told Blue MauMau, “The amendment has been passed by the House and Senate. We are getting the bill ready for the Governor’s signature. I expect it to be on the glide path to completion within the next four or five days.”

Besides setting franchise owner-operators a legal termination and cure minimum, the IFA stated that it was extremely uncomfortable with the act’s description of franchisors as having “superior economic power and superior bargaining power in negotiations.” Such description could be interpreted by Rhode Island courts in implementing the act.

The IFA would like to eliminate such state laws. “The IFA has an agenda to create a less regulatory environment for franchising,” says French.

Mr. French describes the specifics of how the Rhode Island Fair Dealership Act was initiated last year. He explains, “Rhode Island was passed when a licensed distributor of a hair care product was terminated. It was not a franchise. But when RI passed a law in response to this, the law they passed swept up all business format franchising. There’s a lot of collateral damage in franchising when you use a sledge hammer to swat a fly.”

DLA Piper, a law firm that typically represents franchisors, believes that Rhode Island has simply dusted off and cloned Wisconsin’s Fair Dealership Law, a law enacted almost a quarter of a century ago to protect franchise owners.

“Rhode Island passed this law to give extraordinary rights to the least adherent franchisees in a system," elaborates Mr. David French. "[With its passing] all of a sudden the tools a franchisor can use in order to keep franchise owner-operators adhering to system standards for quality assurance was tossed out in Rhode Island.”

The IFA spokesman explains why franchise owner-operators should be supportive of the association’s stand. “If your [franchise] neighbor’s quality goes down dramatically because your franchisor no longer has leverage in forcing your neighbor to be compliant with system standards, then your investment and your brand will be hurt.”

Critics of such laws say that they lead to considerably more litigation. French adds that government regulation of franchising is clumsy at best. “Lawmakers are not in the business of franchising," declares French. "They don’t understand it. They pass a law in response to a certain set of circumstances and they can create a lot of collateral damage for folks involved in franchising. The Rhode Island circumstance is a good example of that.”

French concludes, “The IFA’s franchisee members by and large would prefer that we work [disagreements] out within the IFA through better dialogue between franchisees and franchisors rather than take them to a state legislature or Congress. We don’t think the end result in state legislature or Congress is going to be favorable to franchising. We think they are going to do a lot more harm than good.”

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Related Reading:

• IFA, DLA Piper Reaction to Rhode Island Law
• Educating Mayors on Franchising
• IFA Stifles Broadening of New Jersey Franchisee Protection Law
• Rhode Island Senate Bill 2592/CFA
• IFA and CFA Square off in Rhode Island