IFA Stifles Broadening of New Jersey Franchisee Protection Law
TRENTON, N.J. (Blue MauMau) - The International Franchise Association has stifled an attempt to update the New Jersey Franchise Practice Act sponsored by New Jersey Assemblyman Joseph Cryan in which courts are asked to be broader in their protection of franchise owners.
“I don’t think this amendment is of major newsworthiness,” states Mr. David French, Vice President of Government Relations for the International Franchise Association. Mr. French interviewed with Blue MauMau while attending the 76th Conference of Mayors in Miami, Florida.
Despite the supposedly unremarkable nature of the New Jersey franchise amendment, the IFA has not only written a detailed letter (pdf, 2 pgs) on June 11 to the assemblyman on why the organization opposed his update to the law, and then published the letter, but it also has dispatched representatives to dissuade the New Jersey assemblyman of his position.
Those attempts seem to have worked. The update to the franchise law cannot be found in the list of pending bills.
Justin Klein, a New Jersey franchisee attorney, summarizes that the amendment "is a dusting off the old rule to keep it current. He points out how limited the New Jersey update is in that it still "has not gone as far as the other states in requiring registration."
A main concern for the IFA, according to the letter, is the amendment's expanded list for a franchise's “place of business." The updated law adds office and warehouse to a list describing franchise locations. The IFA’s Director of Government Relations, Troy Flanagan, explains that the enlarged list that defines where franchises carry out business means more franchises will come under state regulation. “This will likely cause certain franchised businesses already regulated by the Federal Trade Commission Franchise Rule to be unnecessarily subjected to additional state scrutiny," he reasons in the letter.
New Jersey attorney Klein observes, "It is disconcerting to me that the IFA takes the position that the state is stepping on the toes of the FTC, who really doesn’t do anything to protect franchisees at the state level."
The Federal Trade Commission's Franchise Rule asks franchisors to complete unmonitored paperwork in which franchisors are asked to disclose information such as franchise owners, officers in the network, lawsuits by franchise owners and other information to potential buyers before they purchase a franchise.
One key statement in the amendment is an instruction to courts “to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees.” The IFA seems particularly sensitive to wording that describes an uneven relationship between franchisor and franchisee. It has advocated in Rhode Island’s Fair Dealership Act to remove such descriptions as “superior economic power and superior bargaining power in negotiations” in describing franchisors to New Jersey courts.
In an order from the legislative branch to New Jersey's courts to be broader in the interpretation of the law protecting franchise owners, the amendment contains these words: “the Legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act than was intended by the Legislature.”
Klein emphasizes, “The proposed legislation clarifies what is already on the books or at least enhances what the legislative intent has been since the inception of the Franchise Practices Act." Klein continues, "The courts have narrowly interpreted the franchise practice act to exclude certain franchise owners and consumers from protection. The legislation is instructing courts that when evaluating a particular situation, err on the side of inclusion rather than exclusion."
Troy Flanagan, Director of Government Relations, summarizes possible ill effects to New Jersey if Mr. Cryan moved forward with the bill. He writes, “Franchising is a successful and growing business model in New Jersey and research suggests that over-regulation of franchised outlets can lead to a decline in the number of franchised businesses. Therefore, New Jersey residents would be denied the opportunity to invest in franchised businesses.”
Klein objects and points out, "The rule's intent is to weed out bad franchisors from harming consumers and franchisees."
Mr. French reiterates the IFA's position. “The IFA’s franchisee members by and large would prefer that we work out within the IFA through better dialogue between franchisees and franchisors work out those problems 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.”
Klein retorts, "It is disconcerting to me when the IFA takes a position when a state tries to increase [franchisee] protection. Although I am a member of the IFA, I hope that that they are interested in fairness in franchising and the protection of franchisees - as well as franchisors.
Note: Blue MauMau has left voice messages for assemblyman Cryan since Thursday but has yet not heard back from him. If we hear from New Jersey lawmakers, new information will be reported.
Related reading:
Ironic, isn't it?
"The IFA seems particularly sensitive to wording that describes an uneven relationship between franchisor and franchisee".
Unless, of course, that wording appears in a franchise agreement....