Universal Franchisee Bill of Rights

Franchising is one of the most powerful brand building tools ever created.  It is reported that franchising is responsible for 760,000 businesses, 18 million jobs, 14 percent of the private sector employment, and over $500 billion in annual payroll.

  Total sales by businesses operated by franchisees are projected to reach over $2 trillion this year.  1 out of every 12 businesses is independently owned and operated by a franchisee.

Over the last 50 years franchisees have invested their capital and hard work in creating some of the most recognized brands in the marketplace.  The success of franchising is predicated on the investment by franchisees.  This is now at risk because the terms of the franchise agreements have become more one-sided in favor of the franchisors.  They have significantly reduced the ability of franchisees to build their businesses and serve their customers. 

This Universal Franchisee Bill of Rights is a fairness doctrine.  It has been developed by franchisees in multiple systems and industries to identify the basic terms of fairness that are missing in their franchise agreements and must be restored to ensure the success and growth of the franchise systems.

  1. Freedom of Association:  A franchisee may freely associated with other franchisees or associations.

  2. Good Faith and Fair Dealing:  A franchisee may rely on a franchisor’s good faith, fairness, exercise of due care, and performance including the administration of advertising, rewards programs, marketing funds, and franchise or development agreements.

  3. Uniform Application of Brand Standards:  Franchisors shall maintain consistent operating standards under a specific franchise system brand name and uniformly apply such standards in a non-discriminatory manner.

  4. Full Disclosure Regarding Fees Collected From Franchisees:  A franchisor shall make available to the franchisee all records of marketing, rewards programs, and related fees that have been paid by franchisees, vendors, suppliers, and licensees.

  5. Right to Price:  A franchisee may establish the price of goods and services it sells.

  6. Fair Sourcing of Goods and Services:  A franchisee, or franchisee purchasing cooperative, may purchase from any vendor, goods and services that meet the formally established standards of the franchisor.

  7. Right to Renew the Franchise:  A franchisee may renew its franchise under terms free of unreasonable costs and or stipulations.

  8. Right to Transfer:  A franchisee shall have a right to transfer its franchise to a qualified purchaser, including, but not limited to, family members or business partners, without unreasonable costs, stipulations and penalties.

  9. Encroachment:  A franchisee shall have specific market protection where franchisor shall not materially impact the franchisee’s business, or allow another entity with the same or a similar brand to operate.

  10. Ample Notice of Significant Change; Franchisee Termination Rights:  Notice of significant change to the franchise system shall be given in a reasonable time prior to required changes.  A franchisee may terminate without penalty, or liquidated damages, if a change to the franchise system would cause substantial negative impact or if the franchisee is experiencing substantial financial hardship.  Under such termination any non-competition covenant shall be void.

  11. Default; Franchise Termination Rights:  Prior to franchise agreement termination, the franchisee shall be given detailed reasons for alleged default and reasonable time to cure.  Termination shall not occur without good cause, and termination shall not compel payments of liquidated damages or early termination fees.  All franchise agreement rights shall remain in full effect for any franchisee not in default or that cured a default.  A default under one franchise agreement shall not constitute a default under a different franchise agreement.

  12. Fairness in Dispute Resolution:  A franchisee may elect to have all dispute resolution proceedings and legal action occur in the local venue of the franchisee and shall not be required to submit to mandatory binding arbitration.

In support of this Universal Franchisee Bill of Rights, C.K. Patel, chairman of the Asian American Hotel Owners Association, wrote: “Any franchise agreement requires a delicate balance of good faith, fair dealing and power used responsibly.  For the franchisor- franchisee relationship to thrive, the franchisor must live up to certain principle and the franchisee must follow certain guidelines…. This document carefully outlines how the unique franchise partnership can best succeed for mutual benefit.”

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Comments

Bill of Rights Adoption

CK Patel and I joined the AAFD Fair Franchising Standards at the same time, sat beside each other at the meeting, and shared notes about the Standard - Internet Advertising.

Over the years, it became clear that with CK's leadership, AAHOA pushed to vanguard of bringing about both behavioral and contractual change in franchising fairness.  We at the AAFD lagged -but not because we did not have good and passionate people pushing for fairness.

The problem for the AAFD, and so for any non-hotel group of franchisees, is twofold.  

First, in the hotel industry franchisees are re-flagging before the term of the contract ends.  Franchisors court franchisees and legally induce them to switch flags.  The price is usually laid out in the liquidated damages section of the contract.  What this means is that when AAHOA runs a convention, no matter which franchisor they have done public battle with over fairness standards, that franchisor is likely a preferred vendor at the covnetion.  The franchisors pay the freight in order to pitch to the franchisees.  There is no comparable economic situation outside the hotel industry.

Second, AAFD could never get beyond about 10 franchise systems branded as AAFD Fair Franchising Seal Recipients. The reason was simple.  These franchisors found that being branded fair gave them a competitive advantage in selling franchises - so they had no great incentive to go out and tout the AAFD brand if it meant enabling a competitor.  There was no postive catalyst from these 10 Franchising Fairiness Seal Awards.  (Having a lower grade of accreditation "won" by Cuppy's is a different story!)

The AAFD tried and did get industry support for each of its standards, franchisors and their attorneys had to vote and pass the standard.  This is unlike the Universal Bill of Franchisee Rights.  I will be interested to see if this new unilateral approach succeeds where we in the AAFD failed to move the bar.

The AAFD Fair Franchise nonsense was the franchising equivalent

of geriatric excitement. It was always nonsense. No one seriously considered it. Some gave lip service to it where it didn't make any difference anyway. Scoundrels said they would support it and pitched in some cash to the AAFD which disappeared God knows where in exchange for the AAFD endorsement as F'or of the year - complete with dancing franchise lawyers.

Now we have the Bill of Rights. Gimme a break, please!

The bill of rights has the same value and force as everyone in Muldoons standing up and unanimously voting for free drinks. It is meaningless. At least in Muldoons the voters have the excuse that they were drunk. The bill of rights morons were cold sober when they made fools of themselves.

I agree.

However, what if states included these points in disclosure as a way of educating buyers to the key risk? Wouldn't that serve to educate?

Fail

I'd point out that while we condemn people for sitting on the ass and doing nothing to change the abortion that franchising has become under what seems to be a growing majority of franchisors; no one can argue the points made in the Bill of Rights.

The whiners whine and do nothing to lift the bar and lets face it; generally lawyers simple state the obvious; 'it is what it is - get an education and live with it'.  That approach isn't good enough but I cannot say it overestimates the universal apathy of people. 

We are sickened by the complacency of people when it comes to government - remember that old joke about governments OF the people .... ah ... this time around - but we accept our complacency and everyone else's and we get screwed by it every time. 

I congratulate those who produced and promote the Universal Franchising Bill of Rights ... they aren't sitting on their collective asses. It needs to go much further. If franchising was a test case to see if the human race could stand against obvious immorality and blatantly bought law we fail dearly.

Spoken like a TRUE BIG gubermint

Socialist from Australia. AND quoting our founding fathers like he has a clue about the fabric of America. Ray, don't you have a midascon site to prepare?

Midascon? Been there, Done that...

Guest, it's time for you to move on. Ray, is here to promote quality franchising. I've never read anything worth taking away from you, guest. Quite frankly, I'm sick of reading your childish remarks. Move on, or at least, contribute something of substance.

Deal with it Jerry. Quit whining.

I don't agree with big guberming socialists.

Disguised anti-franchisor

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&quot;I don&#39;t agree with big guberming socialists.&quot;</p>
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Quit your anti-franchising whine. What this credit crunch needs is more of the federal government stimulus to help the sales of franchises by giving out more SBA-loans. We all know that.</p>
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We need more complicated tax laws and its accompanying bureaucracy so that Americans can give out tax breaks to franchisors who sell franchise units to war veterans.</p>
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We need to go to places like Georgia and prevent competition, particularly locking up former franchisees from competing for years and years.</p>
<p>
That&#39;s the kind of &quot;big guberming&quot; socialism that is needed to stimulate and protect franchising. If you are for small, leave me alone gub&#39;ment and like the competition of capitalism, then you sir, are no friend to franchising, the IFA or the FCA.&nbsp;</p>

as an anti socialist

I hate the SBA. They sponsor more dunderheads to franchising than any other organization out there. I say aboloish the SBA. Then we wont have dribbling, whining oldswords running around. All these knit whits want a nanny state to protect them.

Zor socialists

Now. Now. None of that. Without the SBA-backed loans in this economy, there would be no selling of franchises.

Of course, as existing franchisees, the last thing we care about is the SBA. That government institution is very low on our priority. We just want the gov't and the lobbyists to leave our small businesses alone. Sadly, lobbyists take our absence and our libertarian disposition as a sign that they can take advantage of us.

Sba is a conundrum

Unfortunately it will never be abolished. If there were no SBA franchises would still be sold, just the number of units would be greatly reduced, and there would be far, far fewer knit whits getting "fleeced" as they say. The SBA is government sponsored garbage masked by franchisers as a contribution to capitalism, but we all know this to be false as there are the unintended consequences which is the by product of government interference.

Re: SBA is a conundrum

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Guest: &quot;The SBA is government sponsored garbage masked by franchisers as a contribution to capitalism&quot;</p>
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That makes sense to me.</p>

Re: As an Anti - socialist

I find you and the other guests quite amusing.  You denigrate me yet you now rail against the SBA -  but who do you think got you all talking about it to begin with?  Were it not for me none of you would be discussing the SBA and the problems they are causing in the world of franchising.  As for my wanting "more gov't regulation" - far from it.  I agree with all of you with getting the SBA out of franchise financing.

One huge problem.  The franchisors will never go for it.  They need financing where they are able to fudge numbers.  You see, Huntington is not the exception - it is the rule.  The Quiznos', Cold Stone's, Coffee Beanery's, Hollywood Tan's, UPS', Blimpie's, (etc.) of the world would not exist if banks provided the financing on their own.  Why?  Because the banks would REQUIRE the franchisors prove the revenue numbers they are providing the franchisees for the loan projections - only they can't.

Lastly, more numbers will be coming out.  The OIG is going to "un-redact" most of the financial information they "redacted" in their report.  (Actually, they already did BUT, as government always does, they f*cked it up and I corrected them so, hopefully, a more accurate report will be issued next week - although more questions exist.)

No, it was Huntington Learning Center

OS says, "Were it not for me none of you would be discussing the SBA and the problems they are causing in the world of franchising."

May I suggest you be a little more humble in your appraoch in uncovering the franchisor's SBA racket. Technically, if it were not for Huntington Learning Center, you my friend, would never have had the opportunity to uncover the whole SBA gambit. I suppose you should be thanking HLC for shafting you and providing the motivation to figure out how you were shafted. Just saying...you know..

Earnings Claims and SBA Loans

Oldsword correctly writes: "You see, Huntington is not the exception - it is the rule.  The Quiznos', Cold Stone's, Coffee Beanery's, Hollywood Tan's, UPS', Blimpie's, (etc.) of the world would not exist if banks provided the financing on their own.  Why?  Because the banks would REQUIRE the franchisors prove the revenue numbers they are providing the franchisees for the loan projections - only they can't."

This is correct.  No bank would lead against a business proposal that was based on the earnings claims contained in item 19 for over 80% of franchisors.  Since the franchisor cannot legally disclose to the franchise or its agent anything more that what is already in the item 19, the franchisor has had come up with the following legal fiction:  

"We don't have an earnings claim, but we will be able to prepare one for you once you agree that we don't have one.  In fact we have the earnings claim right here - but you cannot get it until you agree we don't have one, and if we did, then you didn't rely upon it."

SBA Projections

Our SBA lender had us personally sign each page of the financial projections we submitted. When I asked, "why are we signing each page?" The SBA lender said, "because we want to confirm you created the projections and no one else."

I can see how the financial projections can be created by a franchisor but have the franchisee borrower say it is theirs and essentially trap themselves into validating the franchisor's integration clause when the business outcome is a disaster.

Anyone, Item 19?

Michael said: ‘No bank would lend against a business proposal that was based on the earnings claims contained in item 19 for over 80% of franchisors.’

How reliable are Item 19 disclosures? Do they tend to be accurate but illustrate a financial model that does not work?

Re: Earnings claims and SBA loans. Michael please help.

Michael, would you please answer the following question to help clarify something for me as well as other readers:  In the CNBC franchising special the spokesperson for the FTC, if I remember correctly, said there are NO laws prohibiting the franchisor from providing earnings information.  In fact, I believe she wanted the name of the franchisor executive (Camp BowWow's CEO) who claimed that they could not provide any earnings info because it would be illegal.  Would you clarify your statement that "the franchisor cannot legally disclose to the franchise or its agent anything more that what is already in the item 19"?

I am not questioning you.  I really just want to understand the area of earnings claims.  Especially since I remember that specific point made in the CNBC special.

How dare foreigners quote America's founding fathers

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Yeah. Some of us Americans don&#39;t like it when foreigners are inspired by our founding fathers. We don&#39;t like it when foreigners find us interesting, watch us intensely and think they know us. I mean, you&#39;d never catch an American quoting from some welfare-state foreigner like John Locke or Adam Smith.</p>

Actually, John Locke and Adam Smith are part of the curriculum

of every accredited college and university in the United States.

You must really enjoy flaunting your ignorance.

Oh, Locke and Smith are part

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Oh, Locke and Smith are part of the curriculum of every accredited college? It&#39;s been so long since I went to college that I plum forgot.</p>
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Those dag nabbed socialist foreigners, especially those from Down Under. Can&#39;t hate &#39;em, but ya certainly can&#39;t lub &#39;em either -- not if you want to be a true American.</p>

I sure wouldn't want to spend time tryng to have fun with anyone

who didn't love Aussies. When is the last time you really had a lot of fun with some great folks and you actually bought a round?

Fun

Solomon: "When is the last time you really had a lot of fun with some great folks and you actually bought a round?"

Last night. I'm hoping the favor will be returned tonight.

Guest1818

Is none other than Ray Bottadale with his balls removed.

Not true

its 3.15am and I just woke up ....  over to you 1818

What a coincidence

Guest: "WOW! Quick response and you jsut happened to wake up"

Hmmm. The guest happens to be posting on the same site. And the guest happens to post just when Ray is up. What are the chances of that? Are we saying that the Guest and Ray are one and the same?!? Or is the guest saying that Ray is spending too much time in the middle of the night on this site and should sleep?

I'm confused.

Confused

Is your middle name. Go drink some Smart Water and think some more.

Dear Miss Information (aka

Dear Miss Information (aka Guest),

My middle name may be Confused. I'm the first to admit that life is a complicated thing. But yours, my dear lady, is Clueless if you think drinking "smart" water makes one smarter.

they say

The sense of humor is the second thing to go.

guest 1818 = Ray the Wanker

That is a fact. Bet $1000 They have Aussie IP addresses.

You claim a lot of facts that

You claim a lot of facts that are lies and you claim to debate but you don't debate. Loser

I had four. Now I'm down to

I had four. Now I'm down to two, which is enough for me in my old age. Judging from Ray's photo, I'm the better looking one.

Well, you won't get an

Well, you won't get an argument from me. Ray is so ugly he had to take his original picture down and replace it with a distorted black and white. Creepy looking fellow.

Aussies love grass

Aussies love grass roots Americans and generally hate corporate America. We see corporate America drag your government around by the nose and then ours follow and then in comes grass roots Americans and declares enough is enough.

One of our all time favourite Americans was Lee Marvin.  He’d fly into Sydney and in less than 24 hours he’d be 3,000 miles north sailing out of Cairns in old shorts and tee-shirt, well and truly lubricated and chasing some big fish. I remember one television interview on the wharf on the return from one such trip where he was adequatley lubricated for the weigh in. It was suggested he loved our fishing to which he responded he loved having a beer with Aussies.

If you come to Australia with a high opinion of yourself and a thin skin then you won’t have a good time but if that’s not the case then you will have an absolute ball. But in truth; these days only half the population are dedicated alcohol aficionados. When Lee left us it seems we lost the will to compete at that level.  He was a great man and a wonderful singer.

Lee Marvin

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Ray, that sounds like pretty good living.</p>
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Do you remember the movie with Lee Marvin as an American WWII soldier? Hell in the Pacific. He was stuck on an island with a Japanese soldier fighting out the war, a sort of tit for tat scenario. My favorite scene was when Marvin pissed on the other guy.</p>
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It wasn&#39;t a very popular movie but it made Lee Marvin a hero in my book.</p>
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They eventually learned to work together. I think there is an allegory there for some franchise systems. (See, I told you I&#39;d try to bring my ramblings back to the topic at hand.)</p>

Remember it well ... loved

Remember it well ... loved Cat Ballou where he played 2 roles and won an Oscar. The good franchisor blew away the bad franchisor. Kid Shelleen won out.