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the full story is

Shunning the troll may encourage it to go away to the murky, deep, dank cave it calls home.

My friend you are not far off. In another forum it was revealed that Carol was Bigfoot's forest bride, but even he got sick of her harpy routine and dumped her. So as to living in a cave, it seems she has been there and done that.

Please be merciful oh magnificent one - please

But you are the truth, you are our guiding light, you Carol Eblen and Barack Obama shall lead us to the promised land with your vast experiences. Who better than Carol Eblen and Barack Obama to guide this nation through its troubled times? I feel so very, very confident in the future with the two of you at the helm. It is obvious that we are all but fools, who can only prosper under the nurturing guiding hand of Government, please never change Carol, don’t ever change. We need you, we need Barack, we are but your children. Show us the way, I beg of you, and whatever you do, never cease to comment on each and every thread with the same message, time and time again – for it is only through repetition that children such as we, learn from our caretakers. You voice, your message must resonate throughout the land, it must resonate in post after post, in forum after forum, in newspaper columns, throughout the land. Please protect us from our own fallibilities. Please I beg, I implore you, have mercy oh divine ones, you and Barack, show us the way…

The words of a nutcasae

Folks, please continue to ignore this babbling fool. Shunning the troll may encourage it to go away to the murky, deep, dank cave it calls home.

Hyperbole and Sarcasm

is no substitute for debating truth, yours and mine!

Carol

You are a rare jewel, a glimmer of hope in a dreary world

Do tell us more. I find your post so informative and just choked full of information. You are a guiding light or truth in the turbulent sea of government malfeasance that allows businesses to conspire with the judiciary to pilfer the wages of those who make this country work. Truly you are amazing, a true gift to the world. Every thread is a testament to your mark of wisdom, your light of all lights, your truth of all truths. Your view is the one, the only truth out there. We in this forum are so fortunate to have you God bless you, continue your good work. Don’t let people silence you. You are so awesome. I hope all your policies are soon implemented. You should go to Washington and testify before Congress. You should be on the national airwaves, maybe do consumer commercials. The whole world needs your truth. God bless you – guest. Please do not ever go away, and please, please post more often. Continue to fight the good fight.

FA's have NO real power

FA's have no real power unless the contracts with the individual franchisees permit some kind of collective bargaining. As it now stands, all franchise agreements are written with the view that there will be NO collective bargaining because of the danger collective bargaining presents to the franchisors.

The franchisors, because they don't own the hard assets of the systems that produce their EBITDA know that they have to maintain absolute control under contract to prevent any collective bargaining that would in anyway reduce their EBITDA.

A startup franchisee may feel some alliance with other franchisees but his primary relationship is with the franchisor, who owns the franchisee under contract. Other franchisees may even be competitors of the startup franchisee, who is unaware that he needs a Franchise Association in the startup period of the business.

Franchisees have no Political Action Committee because they don't know they need one until much too late. Franchisees can only be saved BEFORE they put their signature to the contract but the status quo doesn't want to do anything about the malicious trap of ineffective presale disclosure that doesn't require franchisors to disclose historical unit performance statistics to new buyers, or to investors in the securities of the franchise systems.

In the United States, franchisors are protected by the FTC Rule from claims by franchisess that they have been fraudulently induced to contract. Because of this ineffective regulation, franchisors, even mature franchisors, are emboldened to cannibalize their franchisees through churning and encroaching for the purpose of perpetuating the growth of their EBITDA with apparent immunity under existing law and regulation.

Carol

Ray Borradale's picture

Two Questions

Going back to when everything began hitting the fan with this zor my earliest research came up with the Meineke action and franchiseremedies.com 

Previously; I and my friends thought we had been unfortunate to have come across the only dishonest franchisor in the world.  And before that we thought he was just a simpleton.  And now .... there is so much more franchising history out there if people will just understand the risk and take it seriously. 

It doesn't fix anything if you find your way to research after you have signed with a scumbag franchisor.  So here are 2 questions for all;

How many prospective franchisees come to BMM or any of the other franchising blog sites mentioned and when they cannot find any mention of a particular franchise they presume all is healthy? 

How many learn from the lessons to ask the right questions or get the right people to ask the right questions because they understand that the real level of risk suggests you cannot presume anything?

michael webster's picture

Meineke Lawsuit

Richard, it is a very, very, very long story.  

In the end, however, the Meineke Dealer's Association formed a co-op, has a very strong IndFA, and have contributed mightly to making the Meineke brand relevant again - something Ken Walker acknowledged at the IFA conference in San Diego. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

michael webster's picture

IndFA and Alternative Sources

Richard writes: "That leaves only militant independent franchisee associations as the remedy for being ripped off ala the accusations against Quiznos. Since the militant independent franchisee association is a proven vehicle for dealing with this issue, there really is no need for any legal remedy - if you are being victimized it is only because you are too lazy/timorous to help yourselves."

Richard is just right on this - if you believe that as a group that you can source cheaper supplies that meet the franchisor's standards, then you have to form your IndFA to take advantage of your collective knowledge. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

RichardSolomon's picture

Here in the good old USA we had the same issues in the

Meinecke Muffler system. Contingent fee counsel did such a grand job that the award to the franchisees was way over $ 500,000,000 - I forget how much it really was, but it was mind blowing.

The impact of the jury's award was such that it would have wiped out the franchisor, and the franchisees didn't want that - they made money in that franchise back in those days. A group of franchisees lobbied against the award. The appelate court threw out the verdict - excessive so they said, as I recall.

My recollection is that no one got anything at all. If someone remembers it differently, please correct me. Sam and Sophie Meinecke rode in my motorcycle group. They were very nice. I never knew whether they were "good" franchisors or not - nor did I much care. My connection to them was grand rides in the Texas Hill Country and cold beer and BBQ outdoors in some of the really great BBQ joints in central Texas.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Ray Borradale's picture

Simon; it is protected fraud

You only have to turn on a television, open a newspaper or check your mail to know that franchise advertising is massive.  But the advertising we don't see doesn't register unless we are the one's paying for it.

As Simon mentioned; the Franchising Code of Conduct mentions advertising funds and audits but how does it work in reality when a franchisor cannot resist whacking the majority of it into his secret little place?   There may be better examples of creative theft then the following and if so I would like to read about other examples.  One thing for sure; accounting for advertising money in rogue systems produces extreme creativity - and it simply isn't necessary?

Brief Background:  In 2004 at the height of an estimated $2.5M annual theft from a $3M advertising fund, the Australian ACCC had been inundated with complaints of the franchisor using advertising money to fund anything and everything except advertising e.g. there was the $7M new franchisor home where one contractor reported receiving one payment with a check straight from the advertising fund.   The point here is not where the money went - it is where the money didn't go.

The industries involved, including competitors and the advertising industries, were acutely aware that the franchisor had virtually shut down advertising in early 2001.  Franchisees had been advised in early 2001 that fund monies would be ‘set aside' for major advertising once the majority of franchises had been re-imaged [at a prohibitive cost to franchisees supporting major income streams from contractors to the franchisor - how unusual].

From 2001 to 2008 the franchisees waited and then on Christmas Eve 2008 the franchisor went into administration and the administrator didn't know what to do with the influx of fund money so then there was advertising.   Good advertising - a little late for all of those that had lost the lot from 2001.

Before I get into the sham that is advertising fund accountability under the Code to offer an overall insight into the ‘bigger picture' I must mention that this franchise scam was copy book.  From advertising theft, abusive and across-the-board rebate systems, franchisor rental control designed to destroy and cruel administration fees, intimidation, abuse and physical threats, the dismantling of any attempt for franchisees to coordinate efforts, massive expenditure on lawyers and vexatious Breach Notices often supported by creative private investigators, and many franchises turned over 5 times in an 84 month ‘killing fields', many more turned over 4 times in the same period and even more turned over 3 times.   What have I left out - plenty!  Almost the entire network was eliminated many times over with only a very small handful of exceptions.  This crap was hard to miss but the ACCC managed to miss it amidst a continual flow of complaints and some media.

I would also make mention that the US franchisor was also made aware of the Australian disasters in 2004 and made generous offers to mediate.  And then they stopped the US/Canada franchisees association from communicating with Australian franchisees and became un-contactable.

I still wonder how so many fools were found but it should also be remembered that almost 100 of those that were slaughtered never had a chance.  They were there long before the brand was sold to a new franchisor and for the first 2 years the stunned network naively misjudged the extent of what was to come. And bear in mind; "you can't lead an army of sheep into battle, can you?"

Scamming the ‘Fund' and the ACCC:

This is so simple.  You start by charging anything you can remotely connect to ‘marketing'.  Re-image company sites, salaries and bonus' for people that walked past the ‘marketing manager', football season tickets, uniforms, meals, cars and travel to anywhere a conversation contained mention of advertising - and so on et cetera. 

Then you setup another company that invoices the franchisor for creative advertising costs.   This company can also control leases but that is another story.  The invoices appear legitimate to an auditor because an auditor does not authenticate invoices - they merely review a ‘sample' to check the systems that produce the balance figure for the fund.  And then the franchisor sends franchisees a 2 page ‘report' on the audit where virtually 1 page contains a disclaimer stating that they ‘sampled' and that they take no responsibility for the authenticity of documents supplied by the franchisor.

The ‘report' is classic; opening balance, above the line advertising, below the line advertising, production costs, 2 or 3 other categories I cannot remember and closing balance - and the math is accurate on this page.

This particular franchisor refused to perform audits initially and when eventually confronted by the ACCC after 18 months of complaints the franchisor had ‘mistakenly' misinterpreted the Code to suggest that if 25% of the network didn't ask for an audit they didn't have to do one - rather than the clear Code requirement that it took 75% of franchisees to state that an audit wasn't necessary.

So franchisees receive the 2 page ‘audit report' that tells them nothing of value other than that the fund that produces virtually no advertising is in the ‘red' - franchisees owed the fund.   

When this was brought to the attention of the ACCC there were many anticipated responses stating that the franchisor had fulfilled its obligation under the Code however on one occasion one lonely ACCC representative stated that if the Code wanted a ‘summary' statement it would have stated a ‘summary' statement and that franchisees were entitled to detailed reporting.  There were more advertising fund complaints to the ACCC but they reverted back to ‘the franchisor fulfilled its obligation and we can find no justification to pursue complaints'. 

So the Code and the ACCC worked well while $Ms went missing annually for over 7 years and there was no meaningful advertising and franchisees were falling over almost every month.  To put this in perspective; prior to the new franchisor that same fund kept that brand near the top of brand awareness within that industry and then the whole shooting match slowly went down the toilet and ended in administration. 

It should be noted that the ACCC had the ability to conduct a forensic investigation of the advertising fund - but they don't do that.  They also had access to advertising industry reporting that would have set off alarm bells - but they either didn't look or they are deaf.   This is the briefest of outlines of how Australian regulation ensures there ain't no hanky panky in advertising funds.  So Yes!  I consider the ACCC, the Code and Australian advertising fund regulation as useless but to be fair I tend to be a tad over-critical.

The events in this blog are not fictional and the Midas Australia name was withheld for no real reason at all.

RichardSolomon's picture

Exemptions for tying are ridiculous. Tie in justification

began with a "secret formula" basis - making the franchisees buy from the franchisor when there was a secret formula (think the Coca Cola secret formula), never to be disclosed, locked away in someone's basement and written in classical Macedonian -think pizza sauce seasonings - YUM!

That migrated into the herbs and spices incorporated into breading mixes for fried chicken and fish - often there was no secret formula - just the mix producer's own company formula for its breading mix with the mix packaged in the franchisor's labelled bags - actual situation with franchisor not knowing the formula itself and demanding that the mix producer disclose something - anything - so long as it could be claimed to be secret. Siegel vs Chicken Delight kinda stuff.

There was Supreme Court dicta to the effect that if the tying product - the franchise itself - had sufficient market power to restrict supply competition in a "not insubstantial" amount of commerce in the tied product, an antitrust violation was present - utter foolishness that was cured in the Jefferson Parish case - thereby and thereafter exonerating franchise tie-ins forever.

All you had to do after Jefferson Parish was to disclose that you had tied in suppplies to yoursself or designated vendors and that you "derive revenue" on account of franchisee purchases from those vendors, and you were home free.

That leaves only militant independent franchisee associations as the remedy for being ripped off ala the accusations against Quiznos. Since the militant independent franchisee association is a proven vehicle for dealing with this issue, there really is no need for any legal remedy - if you are being victimized it is only because you are too lazy/timorous to help yourselves.

Michael and I have been preaching the militant independent franchisee association gambit for years. But you can't lead an army of sheep into battle, can you?

You don't need procedural falderall like exemptions for what can be cured with perfectly legal self help on the part of franchisees.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

simon young's picture

Franchisee associations are part of the answer

I agree completely that FA's set up as a result of dissatisfaction with the 'zor often miss the point. Too many different people have too many different outcomes in mind to be effective. It is also very easy for the franchisor to 'divide and conquer' becuase there is no depth or history of commitment to the FA.

Good franchisors - they do exist! - develop a culture that supports a FA and then they work with the FA to achieve mutual goals. It is one of the hallmarks of a mature system.

BUT, it is up to the franchisor to develop and encourage that culture, so again the bad operators will take advantage of the fragmented franchisees to do what they want. Regulation allowing IndFA exists, but how do you ensure that a group of 'independent' business people protect their own interests by committing their time and resources into an FA?

How do you put a spine into some franchisees? How do you hold back the aggressors who simply want to bring down the 'zor regardless of the consequences? A strong IndFA might, but they do not just happen.

Regulation can only, at best, provide the opportunity but it cannot solve the issue. I think the real answer must lie elsewhere.

Oral Success Claims OUTSIDE of the FDD are against the law

but there is no private right of action under the FTC Rule for those who are fraudulently induced to contract because of the oral earnings claims made outside of the contract during the sales process even when the franchisor is NOT in compliance with the FTC Rule, and has broken the law. .

The Acknowledgment and Integration Clauses with the Reliance language and the franchisee's acknowledgement within the written contract that he/she hasn't been promised any success or profits by the franchisor means that the franchisor is home free if he merely tries to comply with the FTC Rule and the State FDD's that don't mandate that the franchisors promise anything at all to new franchisees.

The FTC Rule is flawed in that it permits franchisors to knowingly sell unprofitable and unviable franchises to the public with apparent immunity under law because of their ability to churn and turn franchisees as merely resources to perpetuate the franchisor's system gross sales. The franchisors CAN THEN somewhat beat the odds of failure of small businesses if they can perpetuate their existence through churning and turning.

A substantive violation of the FTC Rule may mean that the State will negotiate a Rescission but the state-negotiated recissions look to the greatest good of trying to preserve the franchisor and the franchisees who are thriving. Therefore, under federal regulatory policy, franchisees are not made whole through any prosecution of claims for fraudulent inducement to contract under contract law because the federal government has, in effect, negotiated a contract in which franchisees will not be made whole when they are fraudulently induced to contract.

Because franchisors are protected from charges of fraud, they feel free to lie, cheat, and steal under cover of government regulation.

I, of course, believe that it is the constructive fraud of the federally mandated disclosure circular that is packaged with the binding, unilateral, adhesory franchise agreement that brings franchisees to sign agreements based on appearances and the sales hype outside of the contract. Franchisees do this because, of course, they can't access the profits and success promised outside of the contract unless they sign the unbargained contract in which the franchisor promises nothing and they have to agree, in effect, that they are buying the franchise at 100% risk of failure and aren't relying on asnything outside of the written contract.

The courts seem to be saying that if franchisees are fraudulently induced outside of contract, as parole evidence may indicate, this doesn't mean that the franchise agreement is not valid because you have indicated with your signature that you have not RELIED on anything outside of the four corners of the contract, and that the franchisor hasn't promised you success and profits within the written contract. Therefore, if a franchisor doesn't deliver success and profits, too bad--so sad! ---even if most of the franchisees in the system are struggling and many fail.

Then! one has to ask: what is the purpose of the regulation of franchising, and the answer is disturbing!

Carol

Barbara Jorgensen's picture

Carol these 23 disclosures can go a long way

after dealing with a bad zor.

When one reads a FDD there are people who can tear apart the document.  They are called lawyers.  There are many people after intense studying that can see the misleading statements in an FDD. 

It is the lawyers that can do research and find out statues in certain states that clearly states zors have to follow certain laws.  If not they can be held accountable for any wrong doing. A good example is the zor is suppose to be doing business in "Good Faith."  (Honesty and decency.)  Earnings Claims in item 19 states:  We do not funish or authorize our salespersons (including officers and directors) to furnish any oral or written information concerning the actual or potential sales, cost, income, or profits.  Actual results may vary and we cannot estimate the results of any particular franchise.

The FTC in 16 CFR 436.1 (24) (b) To make any oral, written, or visual representation to a propective franchisee which states a specific level of potential sales, income, gross or net profit for that prospective franchisee, or which states other facts which suggest such a specific level, unless:

I will not write out the rest of the law.  In the FDD  states  they claim their employees or sales people do not give oral representations of the sales or members of a franchise.  The FTC law states no oral, written representations  of sales, income.... in a franchise. 

How many zees out there have heard oral representations of sales or members from their salesperson?  I bet you alot. This is part of the fraudulant inducement in getting someone to sign an agreement.  There is no way anyone would sign an agreement without knowing the numbers other franchises have.  It is illogical to think otherwise.

23 Items of Disclosure is Red Herring

Unfortunately the 23 Items of Disclosure is a Red Herring to enable franchisors to obscure the MATERIAL risk factors of unit profitability and unit failure from new buyers of their franchise.

Of the 23 Items of Disclosure, only two of the Items, Item 19 and Item 20, deal with actual perfomance risk of the franchise, itself.

Item 19, "Earnings" is OPTIONAL and only a small percentage of franchisors disclose earnings.

Item 20 provides an OVERVIEW of the system that is misleading because it implies that expansion means growth and profits while expansion when it involves churning of startups that is obscured in the transfer columns hides the viability of the franchise plan from first investors in the franchise.

The purpose of Mandated Disclosure is to permit and license franchisors to sell their franchises without making ANY written representations as to their success or failure, or profits, etc.. in the written FDD/franchise contract for the pupose of protecting the franchisors from fraudulent inducement/concealment to contract claims in the court from those franchises who will fail to thrive. (See Robert Purvin's Comment #79 to The Federal Trade Commission in 1997).

The FTC Rule, in effect, implies that there is NO fraudulent inducement to Contract if there is NO violation of the FTC Rule, and even if there is a violation of the Disclosure Rule, there is NO private right of action for those who are injured by a violation of the Rule. Except, of course, the State can punish the franchisor violator with a Rescission and Consent Decree that is negotiated with a view to saving the Franchisor and the franchisees who are thriving in the system from those who have failed and who want to sue for fraudulent inducement to contract and be made "Whole" under the provisions of contract law.

The 15 States who have Franchise laws have not opened the door to a private right of action for a suit for fraudulent inducement to contract because the FTC Rule trumps the State Laws just as the Federal Arbitration Act is said to overrule State and Federal Law by the Supreme Court.

Carol

Barbara Jorgensen's picture

There is protection in 15 states about disclosures before

you sign an agreement.  Zee's need to see if there is a franchise protection act that have statues or disclosure laws  that will give them that protection. 

California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, Wisconsin.

There are 23 required items of disclosure:

l.  The Franchisor, It's Predecessors and affiliates

2.  Business Experience

3.  Litagation

4.  Bankruptcy

5.  Initial Franchise Fee

6.  Other Fees

7.  Initial Investment

8.  Restrictions on sources of products and services

9.  Franchisee's obligations

10. Financing

11. Franchisor's Obligations

12. Territory

13. Trademarks.

14.  Patents, Copyrights and Proprietary Information

15.  Obligation to participate in the actual operation of the  

       franchise business

16.  Restrictions on what the franchisee may sell

17.  Renewal, termination, transfer and dispute resolution

18.  Public Figures

19.  Earnings Claims

20.  List of outlets

21.  Financial Statements

22.  Contracts

23.  Receipt 

More Regulation may be Effective if-f-f

More Regulation may be effective IF it is useful in identifying which franchises actually deliver a living wage and profits for new investors.

As it stands now, government regulators, in order to protect the franchisors, the entrepreneurs, and their franchises that thrive from those that don't thrive, deem that franchisors have to suck prospective franchisees into contracts that eliminate any possibility of suing the franchisor for fraudulent inducement/concealment when the business fails.

Obviously, when the prospect signs the long-term franchise atreement that protects the franchisor from fraud, he is also signing a long-term "binding" franchise agreement in which the franchisor in the long-term relationship can exploit the franchisee in accordance with the terms of the unbargained contract. The franchisor is in business to make money for himself off of the gross sales of the units, and the supply fees, and advertising, etc...

I agree with Simon Lord that "More regulation can't solve the fundamental problem of franchisors building an empire without any regard for the franchisees they have put into their system."

However, until the PRESALE disclosure process is cleaned up to eliminate unviable and unprofitable franchises from being sold, how is there as chance of enacting fairer relationship guidelines? Isn't all of this talk about "relationship" regulation putting the "cart before the horse" and missing the "elephant in the room?"

Barbara Jorgensen's picture

Regulation makes it easier to identify the rogues in franchising

Regulation will definately help identify the rogues in franchising.  It is the rogues that do not care about their zees.  The rogues is the one you want to stop.  Once they are stopped, people will feel like there is more protection and only then  people will feel safe going into the franchising world. 

michael webster's picture

Advertising

Simon, without an effective IndFA there is very little that a franchisor cannot do.

The main difficulty with IndFA is that there formation is usually prompted by franchisor disatisfaction, but their goal has to be to provide economic value. Often, these two goals get confused. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

michael webster's picture

Competition Act and Franchisor Rebates

Google "Quiznos Ontario Class Action" for your answer.

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

RichardSolomon's picture

Everyone has fears, but if you don't have the strength to

manage your fear so that you can save yourself, you always lose to any bully on the block.

Saying that zees are fearful is a loser's approach, because no one is ever going to just hand franchisees any meaningful assistance because they are just poor downtrodden people.

Sheep are fearful, and sheep get sheared and eaten. The woods are full of wolves, and God put sheep out there for wolves to devour. When the wolves are full, then the sheep left over are eaten by people.

Franchisee sheep will always come out on the short end. Having pity foir them is not helpful. They will only improve their lot when they adopt militancy as their modus operandi.

--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

simon young's picture

Regulation for advertising funds?

Sorry, Do, but Australia does have some regulation in place for "marketing or other co-operative funds" including a requirement that there be an independent audit of the fund every year (which can only be waived by 75% or more of the franchisees) with each category of expense broken down into amounts and percentages.

In theory a franchisee will know exactly how the advertisng funds are spent but in reality it only means the 'zor has to get more creative in their recording.

The most common issue seems to be the tension between advertising for the "brand" and advertising to benefit the local shop (or local group of shops).

I have heard a proposal to return to each contributing store at least 75% of their payments, but even this proposal is likely to fail for the extra 25% - and if three quarters of the levy is returned, why collect it in the first place?

I would like to see a situation where there are no compulsory advertising levies in a franchise system - get rid of it altogether as a compulsory system imposed by the franchisor - instead any marketing is either by agreement with the 'zee diectly, by agreement of a marketing committee dominated by 'zees or funded completely by the 'zor from the franchise fees.

Regulation really only serves one purpose - it makes it easier to identify the rogues. More regulation can't solve the fundamental problem of franchisors building an empire without any regard for the franchisees they have put into their system..

Barbara Jorgensen's picture

It if FEAR that stops zees

from fighting back.  It is FEAR that stops zees from uniting.  They get hurt so bad  they trust no one.  Not even other zees. That is why there needs to be more regulation in franchising.  A code of ethics zors need to follow with stiff consequenses for zors that premeditate scamming their victims.  Fraud is out of hand in every sector of business.  It is obvious with all the consistant stories NOT from one zor but many all over the world.  This is a global problem with many governments not acknowleging there is thousands of people being thrown into poverty because of corporate greed.  

I have talked to several zees from different franchises.  One particular man in Canada.  Really nice older man.  He sounded desperate.  I could hear the hurt in his voice.  I hope he is okay.  He was working his franchise and another job.  The problem is people are simply afraid, devasted and bloody broke.  (And emotionally damaged.)    

Ray Borradale's picture

Do; THE 2 main opportunities

for a scam franchisor with short-term vision to get the ball rolling to rake in the big bucks from the turnover of franchisees are;

1) the irresistable Advertising Fund,

2) the irresistable Supplier provided income streams 

Once these are happening the on-selling of failed franchises is simply a bi-product of the scam system.  It really isn't that complicated with so many systems to copy.  It just takes effort and dedication with a touch of parental abuse.

The most interesting and annoying aspect of all this is the diversity of sophisticated and un-sophisticated approaches to basically produce the same results using similar formats while everyone watches and comments from a distance.  It just goes on and on while the worst can still manage to access new fools and the more sophisticated find even more fools.

And through all that we get franchisees singing the same 'ole song year in year out and refusing to get off their butts and join together.

Barbara Jorgensen's picture

Very common question. Where does the advertising fees go?

If you read in your FDD they are very misleading where the advertising fees go.  They start telling you they will advertise or should I say "intend" to advertise.  Key word is intend.  Then somewhere down the paragraph it will tell you that it can go for expenses at corporate or business travel.  Why do you think many zors travel in private planes to their distination.  Example a CEO with his office staff traveling to visit all the zees on a private plane.  Sounds familiar with what is happening in corporate America? 

It is interesting that when that particular zor tried to open a business like ours,   I  know there was radio advertising for his business. It did not make it. Only advertising we ever heard was for the selling of the franchises.     

Ray Borradale's picture

RE: Canadian Tying

Surely your Competition Act would eliminate abusive franchisor income streams?  Or does it just drive up the hidden rebate abuses? 

Ray Borradale's picture

That is the real question

and the answer is they don't want them and work to avoid them.   Simon, in the Midas Battery scam they never applied for an exemption.  It became one of the many Midas complaints to the ACCC and so the ACCC was eventually forced to respond. 

They stated that they could not interfere in the Midas commercial right to adapt the Ops Manual to allow for new mandatory systems for batteries because they were 'branded' batteries. Now that is side-stepping the issue whether they were branded or not.  It gives us an insight into the importance the ACCC holds for third line forcing in franchising.  Or perhaps it simply confirms once again the ACCC total disinterest in franchising.

Of course there was the option to pursue a civil remedy but that harks back to other BMM discussions on 'access to justice' and the rarity of unified franchisee action.   

Midas franchisees were never to receive a final response with an explanation of what 'public benefit' was achieved or protected from allowing the franchisor to force franchisees to support a blatant franchisor income stream where the franchisee was expected to pass on inflated costs to the public.  The ACCC know that sooner or later annoying franchisees wear down and walk away.  Who holds the ACCC to account?  Certainly not government.

michael webster's picture

Canadian Tying

Interesting to see the difference in laws.

In Canada, at the Federal level, our Competition Act excludes an application of a tying claim for franchise systems!

However, the same Act can be used to forced franchisors to continue to provide supplies/services after a putative termination. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

simon young's picture

This has been a legal dilemma

for a while now. Any franchise arrangement that requires a franchisee to buy from a fixed supplier is likely to be fall within the third line forcing provisions of the Trade Practices Act.

A real question is why the ACCC doesn't get thousands of exemption applications.

Nobody is game is open this Pandora's box - which I suspect also reflects on the ACCC atttitude to applications made by franchisors. The current exemption model isn't really geared to franchising - the public benefit an applicant has to show could well be answered just by citing consistency of service in the franchise group (also remember that s51AC TPA says that any inconsistency in dealing with different franchisees may be indicative of unconscionable conduct; therefore how could a franchisor permit one franchisee to use a more favourable supply arrangement and not make it available to others in the group?)

Boudica Lawson's picture

Disclosure of rebates

While disclosure of the amounts of rebates is not required by the franchising code, the code does provide for for a statement as to whether the rebates are shared directly or indirectly with franchisees.

Franchisees in the Poolwerx network are concerned over the term "majority" in the disclosure document with regards to how much of the rebates are put into the marketing fund.

Due to the structure of the rebates it is exceedingly hard for a franchisee to know if this disclosure of "majority" is actually correct if they cannot find out how much the rebates are.

Would the ACCC need to take into account the amounts of rebates, not just their existence, in making its public interest determination if it can be argued that competitive pricing is the only possible public benefit from the notification?

Ray Borradale's picture

RE: Direct Marketing heavily

If this system is as large as is suggested then that would be one hell of a lot of direct marketing from a national advertising fund.  Direct marketing is effective but it is typically not the entire basis for a marketing strategy for a national brand attracting very large advertising contributions.

Third line forcing is usually a sign of opportunism by the franchisor - the networks subjected to the abuse of "preferred" suppliers to enhance 'buying power' usually understand the quality/price issues and know when they are being screwed.  Typically in most franchises third-line forcing isn't necessary to ensure preferred suppliers ad consistency and value to the franchise model.  If it were the ACCC would be handling tens of thousands of applications.

simon young's picture

Most franchising involves third line forcing

That is supposed to be one of the benefits of franchising - consistentcy of product, consistency of supply and - in theory - a more competitve price. You would ideally want to find a single supplier to do all this for you.

In practice you would be hard pressed to find a franchisor who will actually disclose the level of rebate much less share it around.

I know some franchisors who put the rebate money back into advertising, promotion etc but most regard rebates as 'general revenue' and currently it is only the rebates keeping some system's heads above water.

Poolwerx uses direct marketing to pool owners heavily in their operations. Not a bad concept as far as that goes but their growth remains a bit of a mystery - perhaps another example of statistics in action?

Boudica Lawson's picture

Good question Ray

This ain't no "advertising fee free" system and franchisees would like answers to the question "how come I don't see them advertising anywhere" as well!

Boudica Lawson's picture

At least one exception

There was a third line forcing notification from the Seal a Fridge Franchisor that was actually revoked.

In this instance the ACCC found that there was little if any public benefit and some small public detriment.

Poolwerx franchisees would do well to read the final notice revoking Seal a Fridge Third line forcing in the 2006 public register to gain an understanding of the factors taken into consideration that could be applied to their own situation.

Third Line forcing is one situation where the type of franchise concept plays a strong role in the consideration of benefit versus detriment. For example where the franchise sells an end product according to a (sometimes trademarked) recipe such as a sandwich or a loaf of bread it is a little easier to demonstrate the benefit of a consistent end product. It is harder to argue this is the case where the franchise is a service provider and retails goods in exactly the same state as they have purchased them from suppliers.
Similarly, where the franchisee does not "value add" to the goods it buys and sells by way of processing, bundling or other concept and the franchisor retains rebates it is hard to argue that there is any cost benefit either.

Ray Borradale's picture

Third-Line formality

So this is 'the' Poolwerx franchising of John O'Brien Australian Federal parliamentary fame.  Is this the same ex-chairman of the FCA and Australian representative on the Franchise World Coucil? 

Yes, you will find that the ACCC process is to cover their butt and a decision to allow the application has already happened.  Nigel Ridgway [ nigel.ridgway@accc.gov.au ] is the man to talk to.  He seems a decent sort but he and John go back a long way.

Historically the issue has not been whether the ACCC ask tough questions; it is whether they have again accepted any ‘ole crap for an answer.

Rebates you will never get rid of and therefore you will never get rid of those that abuse rebates for personal benefit with absolute disregard of the consequences to the ‘brand', and definitely without consideration for franchisees.  Third-line forcing legislation in franchising in Australia is a ruse. 

I remember well the Midas Batteries and the attempt to get the ACCC to act. The batteries were Exide Batteries and the stock level for franchisees was determined by the franchisor and supplied and invoiced by the franchisor.    Re-orders were automatic. - if you actually sold one you could almost watch the replacement arrive almost while you were seeing the very last of that customer.  They were just a tad over-priced for the franchisees and when that was passed on customers were not necessarily happy about paying a premium for the opportunity to support their favourite local mechanic.     

But Midas swung that one by as ‘franchising' third-line-forcing and there is a difference apparently because the ACCC saw the Batteries as an obligation under the Operations Manual and apparently because the batteries were ‘branded'.

Sadly; the most annoyed franchisees were those that previously sold Exide Batteries at fair market prices and made a profit because the supplier didn't have to ‘load' the price to cover the new ‘arrangement'.  What actually is the role of the ACCC; I remember something about ‘public benefit'?  Does anyone remember?

Hey all; when you get siht like that happening it isn't a one-off; it is typically one tiny element of behaviours that are designed to profiteer from the franchisee as opposed to profiting from the franchise.  Sometimes referred to as multi-level systematic churning 101. [or whatever]

Poolwerx seems to win all sorts of awards and accolades and most recently for being a BIG growth Australian network and as you would expect, often mentioned by the FCA.  How come I don't see them advertising anywhere or is this one of them thar ‘advertising fee free' franchises I ain't never heard of?

Re: ACCC asks Poolwerx the tough questions?

The ACCC will allow the third line forcing,it always does- the franchisees will in evidently pay and the franchisor will pocket an undisclosed portion of kick back. Franchisors use third line forcing to control franchisees and suppliers help the franchisor to churn the businesses.

Third line forcing is disguised as better value for money and better more competitive yada yada, yet a franchisee can always source the product cheaper from other suppliers.

Bakers delight franchisees tried to stop this, but no, the franchisor conned them.