What Is the Universal Franchisee Bill of Rights?
If you have been looking for information about your rights as a franchisee online, you may have come across something called the “Universal Franchisee Bill of Rights.” While this sounds promising, unfortunately, it does not actually grant you any rights as a franchisee.
As stated by the Coalition of Franchisee Associations (CFA):
“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 [that] must be restored to ensure the success and growth of the[ir] franchise systems.”
In other words, rather than providing franchisees with legal protections, the Universal Franchisee Bill of Rights reflects protections that are absent from most franchise relationships. As a result, reviewing the Bill of Rights is not an exercise in understanding how you are protected, but rather in understanding the risks involved in buying a franchise.
Summary: Universal Franchisee Bill of Rights
There are 13 provisions in the Universal Franchisee Bill of Rights:
- Freedom of Association. You should have the right to communicate and pool resources with other franchisees.
- Good Faith and Fair Dealing. While some states have franchise relationship laws that impose a requirement of good faith and fair dealing, this protection is absent from most franchise agreements.
- Uniform Application of Brand Standards. Franchisors should enforce system standards equally and a non-discriminatory manner. However, discrimination is a common practice in many franchise systems.
- Full Disclosure Regarding Fees Collected from Franchisees. While franchisors have an obligation to disclose certain information about use of funds in their Franchise Disclosure Documents (FDDs), this obligation is far from comprehensive.
- Right to Price. Franchisees should have the right to set their own prices, and not be subject to practices such as retail price fixing or vertical price maintenance.
- Fair Sourcing of Goods and Services. Franchisees should be free to choose the suppliers that offer the best products and most-competitive prices. However, franchisors routinely impose “approved” and “mandatory” supplier obligations.
- Right to Renew the Franchise. While franchise agreements typically include renewal provisions, franchisees’ renewal “rights” are usually subject to highly-discretionary terms and conditions.
- Right to Transfer. Similar to renewal rights, transfer rights in franchise agreements are almost universally subject to a variety of franchisor-friendly restrictions.
- Right against Encroachment. The Universal Franchisee Bill of Rights advocates in favor of clear territorial exclusivity. However, many franchisees receive territorial “rights” that are merely protected, if not practically non-existent.
- Ample Notice of Significant Change; Franchisee Termination Rights. Franchisees should have the right to terminate without penalty if a franchisor imposes a costly and unfavorable change to the franchise system. This is a nice thought, but it isn’t going to happen.
- Default; Franchise Termination Rights. Franchisees should have a viable opportunity to cure defaults, and default-based terminations should not trigger penalties or liquidated damages. Again, these protections are too valuable for franchisor to let them go voluntarily.
- Fairness in Dispute Resolution. While often written with “neutral” language, the dispute resolution provisions included in most franchise agreements inherently favor the franchisor.
- Equity and Property Rights. Franchisees should, “have the right to monetize [their] equity and investment prior to the expiration or termination of the franchise.”