Franchisors, Franchisees at Odds Over Arbitration Fairness Act
The battle lines have been drawn with the proposed Arbitration Fairness Act of 2009 in both houses of Congress. Attorney Neal M. Eiseman, partner of Goetz Fitzpatrick law firm, has this excellent op-ed piece explaining both sides of the issue in the New York Law Journal ($$ subscription required).
The Arbitration Fairness Act is championed by consumer, employment and franchisee groups who advocate arbitration as a choice, not a mandate where consumers and franchisees are "strong-armed" into arbitrating disputes outside their state and into relinquishing the right to participate in class action lawsuits.
Public Citizen, a non-profit organization with 100,000 members which represents consumer interests issued a study concluding:
(i) corporations - not consumers - chose binding mandatory arbitration;
(ii) in more than 19,000 cases, 94.7 percent of the decisions were for business;
(iii) arbitrators have a strong financial incentive to rule in favor of the companies that file cases against consumers because they can make hundreds of thousands of dollars a year conducting arbitrations;
(iv) the National Arbitration Forum arbitrations were shrouded in secrecy with a lack of due process safeguards and
(v) the arbitrations often cost consumers more than had they proceeded in court.
Fearful that it will no longer have business, the American Arbitration Association on the other hand strongly opposes the act, stressing:
Its Institute for Legal Reform just released a poll stating that 71 percent of likely voters oppose removing arbitration agreements from consumer contracts and 82 percent prefer arbitration over litigation as a means to settle a serious dispute with a company.
The U.S. Chamber of Commerce and the AAA stress that existing protocols can fix issues of unfair and mandatory binding arbitration clauses. The AAA says:
The protocols are designed to ensure that (i) arbitrators are truly neutral and make appropriate disclosures to ensure impartiality and (ii) the arbitration's cost, location, time-limits and access to information are "reasonable" to consumers.
However, a study by congress issued its findings of the shortcomings of the the modern application of the 1925 Federal Arbitration Act:
- The Federal Arbitration Act was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.
- The series of U.S. Supreme Court decisions have changed the meaning of the act so that it now extends to disputes between parties of greatly disparate economic power.
- Private arbitration companies are sometimes under great pressure to devise systems that favor the corporate repeat players who decide whether those companies will receive their lucrative business.
- Mandatory arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators' decisions.
The International Franchise Association opposes this bill. Franchisee groups such as the American Association of Franchisees and Dealers, the Coalition of Franchisee Associations and Dunkin’ Donuts Independent Franchise Owners supports it.
- Franchise topic:
I have put in at least 3000 hours studying, talking to zees from different systems, talking to lawyers, going to the library of law books, looking up cases why zees loose in litigation. Talking to zees who have gone to arbitration who have studied as much as I did.
If someone came up to me for advice about franchising I would direct them to a franchise attorney.
People who read my comments and have experience in getting fleeced do not think I am childlike or stupid.
The one's to be pitied are people who have no sense of right and wrong.
I feel sorry for you folks who purposely go out and hurt people. If you treat people like you do your zees I feel sorry for your families. How can you possibly have feelings of loyalty if you think it is okay to hurt people period? You have no sense of honor. You don't even know what character means. No you are the one's to be pitied. .
is real. It's all in my mind. I'm living the aftermath of franchise fraud. It is very real to my family and I. ( And many tens of thousands of people in our country.) That doesn't include the rest of the world.
You don't want the gravy train stopped.
A Texas billionare just got 250 years in prison for his ponzi scheme. The people who were silenced by bribery are also in trouble.
I think the people who premeditate scams to rob people need professional help. There were concrete reasons for studying that people who know me know what I was doing. I am a very focused individual. The case with Rich who won in court with Quiznos the lawyers spend 1900 hours on that case. Were they obsessed? They had a job and did it. I was doing a job of studying for a reason. You zors do not want anyone to know the truth about how people get hurt in franchising because you want that gravy train keep bringing that money in from the hard working people of our country.so you can reap the benefits of other people' s blood, sweat and tears. You enjoy the fruits of their labor and they are thrown into poverty.
When it comes to hurting people you bet I will do anything I can to stop it.
How do you know I wasn't studying for $$$. Go back under your rock
I am for good business practices period. Haven't you read all the stories all over the internet about how families have been ruined in franchising. Are you just ignoring the bad?
By the way you are onoxious to me because you are ranting about me when all I am doing is hoping people who are looking for a good franchise system will find one.
Are you saying to be normal you have to have an obvious agenda? My agenda is simple. I want the fleecing of the hard working people of our country to stop. I want franchising to be safe for everyone. I want those in franchise systems to be part of an association. I want people who are still in a bad franchise system and see and know that something is wrong to listen to their gut feelings. Have a back out plan. Actually they should have money put away before they open a franchise preparing for the worst case senerio. That means legal fees.
In fact I thought of another way a zee can protect themselves is keep a journal from the first time they seek a franchise. Every conversation take notes just for protection. Take that journal whenever you meet with any reps of the franchise. Every phone conversation, meeting, training sessions write what they say. If they tell you to stop writing. Tell them I always take notes and there is no where in the agreement that says I cannot take notes. I believe people need to protect themselves.
love it - can you imagine how many nervous sellers will be frisking prospects.
'If they don't want you to record their conversations with you run like hell' - or I would also suspect a decilne to answer some of the most common questions.
I think a digital recorder would have to have instructions on how to anticipate and interpret reactions. I have a great little one that comes with software for downloading and I believe it cost me $140. One of the cheaper processes in the due diligence process.
What a great show - I would go to one a day if the entry wasn't too expensive. Love it ... Why not digital video? The police do it for minor offences and franchising isn't minor .... but it is offensive.
The more things change; the more they stay the same.
Most franchisees do not have arbitration clauses with their hamburger flippers and front desk clerks.
Also in matters of wage & hour disputes and unemployment claims which constitute the bulk of franchised-outlet employee disputes, the state government (usually the Dept of Labor) has an independent basis for action and they don't arbitrate bupkus.
Moreover, in the labor matters which have been the high-profile arbitration cases since the late 1980s, the courts have taken the position that an employee can just as effectively vindicate his statutory rights via the arbitral process as via the judicial process. This is demonstrably untrue given the court's position on the arbitratal tribunal's ability to ignore not only evidentiary and procedural rights but even to "manifestly disregard" the very statutes they are ostensibly vindicating.
The problem here is that the current predominant arbitral jurisprudence is facially absurd, and rather than acknowledging that (and modifying lobbying positions accordingly) the AAA, IFA, and other such organizations continue to act as though the voters are incapable of seeing reality.
No doubt the IFA can get a few dozen franchisees to march around the Hill praising the wonders of mandatory arbitration; they can get a few dozen franchisees to praise the virtues of self-flagellation if they wanted (some on BMM might say the foregoing sentence is redundant). But I don't see any groundswell of support among franchisees in support of arbitration.
Frankly, I think that arbitration has been getting an undeservedly bad name recently. I use it in many of my contracts and while it is highly subject to abuse in adhesory contracts it is not per se a bad process.
In not being honest about the merits and demerits of arbitration and the potential for abuse, the big corporate interests such as the Chamber of Commerce and the IFA are missing a chance to salvage arbitration clauses.
There is a growing disconnect between a judiciary which wants to clear dockets so they can go home at 4:15 and a public and legislature which has seen arbitration morph over the last 25 years into something never envisioned when the FAA was originally passed.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
The actual news article is a balanced presentation. The discussion above is not reflective of a more complete presentation of both sides of the debate as given by the author of the news article.
"Guest" is correct in that the "findings" section of a bill do NOT mean that there has been any study of anything by Congress.
I don't disagree with the "findings" of the proposed legislation; indeed I think they are difficult to argue with if one is familiar with the history of the FAA. However... it does not necessarily follow that the remedies proposed in the legislation are desirable, nor that the legislation will itself not cause further problems.
From a tactical standpoint, I think the IFA and AAA are making a mistake disputing the accuracy of the "findings" in order to make the case that the legislation is unnecessary. Points #1,3, and 4 are beyond reasonable dispute. If opposition to the legislation is truly predicated on arguing the "findings" then the IFA and AAA will lose.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Sorry, you must have misplaced your link. I have read the above paper and references, and none of them support the 94.7 contention.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"