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Bait, bankruptcy, balance, plunder, partiality and power are six words that describe half a dozen must-read books for franchise regulators and lawmakers. Every regulator, lawmaker and even owner-operator who wants to understand the franchise legal environment that they work in should read these.
Franchising, Trap for the Trusting by the late Harold Brown (1969). This is the granddaddy of books that started the whole discussion on the need for franchise regulation and how it should be done. It called for a boosting of the implied covenant of good faith and fair dealing under the law for franchisees. That's 44 years before this year's California's Senate Bill 610, which attempts to do just that. Already approved in the senate, it will shortly be voted on by the state's assembly members.
"Problematic Relations: Franchising and the Law of Incomplete Contracts" A 1990 article by Gillian Hadfield, now professor of law and economics at the University of Southern California. This is the shortest of the readings, but it is the gold standard. Writing for the Stanford Law Review, legal expert Hadfield expounds how U.S. courts rely too much on the franchise contract, which is by its nature incomplete. Standardized take-it-or-leave-it franchise contracts that proliferate throughout a brand and the industry are signs of an unhealthy relational imbalance between a franchisor and franchisee. She also points out to the legal community that abusive franchisor behavior is hard to catch. "Provided that the franchisor articulates some plausible business rationale for its actions, courts will not interfere," she warned. "In doing so, however, the courts fail in their traditional task of enforcing the true exchanges reached by the contracting parties," she wrote. Hadfield was blasted by the ABA Franchise Law Journal editor and franchisor attorneys for her views on franchising. "Good faith," stressed the litigation reformist. Nah, "franchise contracts," replied franchisor attorneys.
The Corporate Paradox: Power and Control in the Business Franchise (1994) by Alan Felstead. The then researcher for the Centre for Labour Market Studies at the University of Leicester, Felstead brings fresh eyes to how franchising has avoided employer and employee contractual obligations. "Where are the boundaries of the new firm?" he asks of franchising. He asks who actually controls what. The British scholar explores how franchising has managed to avoid traditional business contractual bonds among equals. He also explores the organizational power dynamics between franchisors and business format franchisees.
Beguiling Heresy: Regulating the Franchise Relationship (2004) by New York attorney Paul Steinberg and the late Gerald Lescatre. The then-law-student Steinberg's brilliant book uses hundreds of legal cases and media citations to organize and highlight the many problems of modern-day business format franchises. He shows how current franchise law has not been sufficient in accommodating the complex franchise relationship between franchisor and franchisee.
Regulation of Franchising in the New Global Economy (2011) by Prof. Elizabeth Crawford Spencer. Spencer, an American lawyer and an Australian legal professor at Bond University, argues that better regulation is needed to address franchising abuse. The professor shows that countries with no regulation or a hodgepodge of regulation have costly market inefficiencies (read: armies of attorneys and legal fees for hodgepodge-land). As an internationalist, she explores the world to find the best regulatory scenario.
Franchisees as Consumers (2013) by Prof. Jenny Buchan. "Can franchisees protect themselves against the consequences of a rogue franchisor's exploitative, negligent, fraudulent or criminal behaviour by simply negotiating contracts better?" asks Buchan of the University of New South Wales. Her short answer, "no", whether the franchisee is in America or Australia. The solution is for the law to treat franchise owners as consumers, to change current corporate governance laws so that a franchisor's directors also have fiduciary responsibility to franchisees and to change bankruptcy regulation so that it protects franchisees when their franchisor becomes insolvent and under administration. At this point that is not happening.
What stands out in this chronological march of legal books is how resistant the industry has historically been to the recommendations of its top experts and scholars who don't toe the franchisor line — to its detriment. Regulation often hasn't really addressed the heart of the issues and problems with franchise relations. Now there is a renewed vigor for regulation. Cutting-edge legal research is coming from a new wave of young Australian scholars who are looking to America as well as at their own plight Down Under. Their thought leaders and mentors have been some of America's elite. Now they are passing it back.
It should be pointed out that the living scholars are also great resources for lawmakers who want to go beyond lobbying spin, myth and industry self-interests.
Franchisees: These books on franchise regulation can help you understand the realities of the legal environment around you and what changes to push for — if reading legalese and law doesn't put you to sleep first. Personally, I love reading this stuff.
A book with less legal jargon and worthy of an honorable mention is The Franchise Fraud: How to Protect Yourself before and after You Invest by Robert Purvin, Jr., a California attorney and the chair of the American Association of Franchisees and Dealers. Although considerable space is given to franchise law, it's really in another genre from the legal books above. It's a great read for franchise investors (buyers). If you want some sales spin to grease your way to a buy, then this is not the book for you. This aims to debunk the hype.