Franchise Fairness Myths and Realities
What is franchise fairness? According to failed franchisees and franchisees locked (so they think) into abusive franchise relationships, franchise fairness is that state of affairs in which they are not required to observe strict compliance with the very one sided contracts they signed.
According to franchisors, franchise fairness is that state of affairs in which franchisees bought franchises and signed franchise agreements after doing competent due diligence and making affirmative investment decisions as adults responsible for their acts.
Both of these notions are fantasies. Neither state of affairs exists and neither ever existed in the history of franchising. If you need the particulars of why these notions are fantasies, read the franchise fraud tutorial articles published at FranchsieRemedies,com.
Where is the reality? What is reasonably expectable in the real world of franchising?
To come to a reality based appreciation of the franchise relationship of today, 2009, there have to be factual reference points. Once we identify the reference points, we can begin to have practical comprehension. Everything starts with the facts of the current situation.
First, a disclaimer - You can’t read anything written by a lawyer without his asserting some CYA disclaimer or other, right? Well, this isn’t a CYA disclaimer.
Over the years I have had a running feud with the AAFD, a pseudo franchisee affiliation group claiming to be the foremost advocate of fairness in franchising. It was never an advocate of anything, as advocacy is a prelude to action. Chanting mantras into the air without doing anything in furtherance of the cause is not advocacy. “We want franchise fairness” is just noise in the absence of overt competent action. The AAFD never engages in any action other than holding ridiculous meetings; publishing pie in the sky criteria for what it called fair franchise agreements; bestowing awards upon some of the worst franchise thieves in the modern history of franchising – all in the hope of generating sufficient revenue to “pay the rent”, as one famous New York City franchise lawyer so often puts it. It was never anything more effective than being the Alvin and the Chipmunks of franchising – a chatting society of loser, underfunded timid franchisee groups.
Because I have always loudly and often voiced my disrespect for the AAFD and its absurd “leader” some franchisee supportive lawyers and writers have accused me of being against fairness in franchising. Nothing could be further from the truth.
I am very aggressively in favor of balanced franchise relationships. Fairness only happens in balanced transactions. If you can’t find a route to a balanced transactional relationship and make it happen in reality, the weaker side will always get screwed. In the instance of franchise investment, the weaker side consists of people who refuse to use competent pre investment due diligence resources that vet the deal quality as well as the legal documents. They refuse to use competent due diligence resources for two reasons. They falsely believe they know enough about franchising and how it works and what the contracts and disclosure packages mean – they don’t have a clue – they have no prior relevant experience. They are unwilling to spend the money that competent pre investment due diligence costs. Consequently, they sign on to ridiculous deals and go broke. They then blame the circumstances on the government and on so called crooked franchisors.
The reality is that crooked franchisors are out there, and they can be identified before you buy their franchises. There are telltale facts about franchise deals that no one should ever sign on to. People who understand how to spot these can save you from going broke on bad franchise deals. If you choose not to use them, your being fleeced is not the result of franchise unfairness. It is the result of your own incompetence. In short, it has nothing whatsoever to do with unfairness.
In reality there are also crooked franchisees that cheat their franchisors. Having signed very one sided agreements, and having failed to organize effective independent franchisee associations to deal with the legal imbalances, they falsely believe they are justified in simply fudging. They lie, cheat and steal just like the crooked franchisors. This is also not franchise unfairness. The difference is that in this instance the franchisors do have effective machinery to deal with non-compliant franchisees.
Independent franchisee associations can overcome the disadvantages of one sided franchise agreements. Let’s pretend independent franchisee associations cannot get there. Lets pretend independent franchisee associations are those that were not started very early; have insufficient support through (sufficient) dues paying membership; are led by people who have no clue how to lead an independent franchisee association; and accomplish nothing. They may hold meetings and call people names and pass out ridiculous awards (that I call Brass Bob awards), but they are useless.
If you want franchise fairness to become a reality, you must vet the deals you invest in competently, and you must have an effective independent franchisee association. If you lack either one of those, you will get screwed almost every time. Since an effectively led independent franchisee association is as much benefit to a franchisor as it is to its franchisees, failing to establish and support one is one of the most absurd things franchisees could ever do.
Will you ever live to see franchise fairness provided by legislation? NO. Never. Nothing any government can do could ever produce “fairness”/balanced transactions in a free market without destroying the free market. No right that anyone has – none whatsoever – is self executing. You must defend your position. Statutes that prohibit fraud do not eliminate fraud any more than statutes that prohibit murder have eliminated murder. You must be locked and loaded and affirmatively protect your interests in every human situation. What you were taught in high school and college about notions of “equality” – especially economic equality – was an absurd lie. If there were economic equality there could be no freedom to negotiate the kinds of deals that free markets provide. Economic freedom depends upon people being able to decide for themselves what terms they will accept or decline and what they can live with, considering how adept they are in managing commercial relationships. Both these actions require competence. When the incompetent fail to recognize their limitations, they are the sheep that the wolves enjoy eating. These are not arguments. These are plain old facts.
I am the most forceful advocate I know of in favor of franchise fairness. The difference is that I know that it will not happen without self help. Holding meetings and fantasizing about how to use words to overcome a complete lack of action are ridiculous notions with no possibility of achieving any worthwhile goals.
These, my friends, are the differences between the realities and the myths about franchise fairness.