Fair Franchising Laws Move Forward in 2007

Writer's note: The place to improve laws governing franchise rules is in the state and provincial capitals. Franchise owners should organize and proselytize their elected state representatives for improvement of the state laws governing franchisor/franchisee relationships.

This year Rhode Island joins the list, as does a host of Canadian provinces.

Rhode Island Improves Franchise Rules

Recently, Rhode Island lawmakers tightened the state’s laws governing franchise contracts by extending the amount of notice franchisors must give franchisees before making significant changes in their agreement including terminations. Rhode Island’s is the first state law of its kind since Iowa passed one in 1992. The law is also similar to a 24-year-old Wisconsin law. Some franchisor lawyers predicted, in a veiled threat, that the new law could cause some franchisors not to franchise in Rhode Island. In 1992, the Iowa franchise law caused Holiday Inns, McDonald’s and other franchisors to boycott the state. If that happens in Rhode Island, it will open the doors to smaller hotel franchise companies such as Vista Inns, Americas Best Value Inns, Budgetel, Settle Inns who operate fair franchising companies.

What’s Up With Canada?

In the September issue of Franchise Times, columnist Philip F. Zeidman, Esq. of DLA Piper US LLP, asks rhetorically “What’s Up With Canada?” He then worries that while there is a “decreased appetite” for franchise laws in the United States (on the contrary, see Rhode Island's new law above) there seems to be “pots boiling” in Canada. From Alberta to Ontario, to Prince Edward Island, to New Brunswick, to Manitoba there are new franchise rules being considered. To Zeidman, this poses special problems for franchisors. He clearly doesn’t understand that franchisees need this kind of legislative protection because, left alone, some franchise companies have in the past abused and cheated franchisees.

Remember, that in the face of such abuse in the United States in 1972, the Federal Trade Commission held extensive hearings resulting in the Franchise Rule which mandated the distribution of the indispensable Uniform Franchise Offering Circular.

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Related reading:

Stanley Turkel, MHS, ISHC, is a New York-based hotel consultant specializing in hotel franchising issues, asset management and litigation support services. He is also available for due diligence studies for an acquisition, a third-party audit of a marketing or operational problem, an expert review of a management contract or a franchise agreement, or litigation support. Mr. Turkel is a member of the International Society of Hospitality Consultants and can be reached at 917-628-8549 or email at [email protected]

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Comments

Canadian Franchise Laws

Stan;  As you may know Ontario has a statutory duty imposed on both franchisees and franchisors to act in good faith, which includes an objective test - reasonable commercial standards.

We have not had a great deal of case law on this statutory tort.  But, in the context of hotel franchises do you have an opinion on what practice is most likely to be in violation of this statutory duty? 

Michael Webster PhD LLB

Franchise News

And while you are at it Stan,

could you let me know how much franchisor business left Rhode Island?

Can you still buy a burger in Rhode Island after such devastating reform? Did some hotel chains walk out while others walked in?