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Deceptive Franchise Practices Act implemented by States

Interesting article, Peter. Really enjoyed the read. I think one additional solution to working this into contract terms is to place more requirements in various State Acts that guard against deceptive franchise practices. Indiana is 1 such state that has a deceptive practices act specific to Franchise transactions.

Certification Would Work For Some

As someone who lost all in the Quiznos fiasco certification may or may not have saved me from a terrible decision. But what it could've done if it collected and verified information was shine the light of truth on Rick Schaden's subsequent schemes. It probably could've stopped other Schaden rip-offs like 123 Fitness that have imploded, which he founded with his ill gotten Q gain, from ever existing. And a guy with his crummy track record never would've gotten Smashburgers off the ground with the information in what would be his current file.

Off topic and not constructive

Although I feel for you, how is your departure related to the topic of duty of franchisor competency? Would either statutory duty, certification, or keeping the current status quo have helped or hindered? Which one would be best? Why?

After 28 years franchising with Domino's Pizza - happy to be out

How fortunate we are that my husband was able to sell his store and get out of the spiraling debt cycle. Corporate blames the franchisees - meanwhile many good people are being forced out without the ability to sell their stores. Glad it's over.

Why create a law rather than put duty into contracts?

Why does a duty of competency have to be put into statutory law rather than the franchise contract?

Need to opt for certification

If realtors must be certified so should franchisors and their leaders. The problem is that the International Franchise Association would only know how to teach and certify bad players.

Darnelle White's picture

Sadly, zor Biglari has right to incompetency, roll out whims

The issue of a lack of a franchisor's duty of competency relates to even the current news, Biglari Holdings' franchising company for Steak 'n Shake, SNS Enterprises, and the Denver franchisee, which is being forced to close. Look here:

In addition, the filings claim that on April 5, 2013, SNS Enterprises announced it expanded its “4 Meals Under $4” promotion to include 20 or more meals, which the franchisees said was “a significant decrease in pricing, despite the fact that the new menu neither was tested in a sufficient number of locations, nor was tested for a sufficient amount of time.

The franchisees also claim SNS Enterprises implemented a change in the point-of-sale system that prevented their restaurants “from selling individual menu items to their customers, despite repeated requests from customers to be able to purchase individual menu items.” - from Nation's Restaurant News, Aug 3

Those arguments won't hold with the court. Even if SNS Enterprises tested the product only in one store for just two hours, the franchisor is not accountable to a duty of competency or due diligence under the current law. It doesn't have to test at all when it requires franchise owners take a risk and sell a bad product. The franchisor is also free to mandate that their flawed POS system is bought by franchisees.

In their defense, franchisors would argue the law protects them in their incompetence because they need the flexibility to roll out new things quickly without being inhibited by long processes of due diligence to prove it is a wise investment for the franchisees' money. They have to constantly try new things and ideas to thrive.

the last say

It seems to me that almost all franchise agreements I have seen or heard of gives all zor's a get out of jail free card; the clause that any and all disputes must go to arbitration and don't even think of banding together to do it.

Certification vs Duty

Isn't deciding to set up a certification system different than the issue of statutory duty of competency? For example, can't I have a statutory duty to drive a tractor competently even though I might not need a license or be certified to drive it off of public highways?

You do bring up an equally interesting topic besides a statutory duty of competency. Realtors have to be certified so that they pass criteria and an exam in order to receive their license and begin selling real estate. Likewise, should franchising have a licensing and certification system?

Who would conduct it? If private industry is used so that Americans don't have to directly support the system with their tax dollars*, I suppose the International Franchise Association is in a good position to administer a certification system. The IFA should love that since it ensures all franchisors go through their association to be licensed. That's a big boost to their ranks. Right now they only have 1,000 of the 4,000 franchisors out there. Or should some other private entity administer certification?

If the government administers, which has less of a chance of industry capture, then who would the states likely use? For example, Georgia's Secretary of State oversees the licensing of the state's many accountants.

*Note: Americans already support with their tax dollars a court system that enforces the status quo of abusive franchise contracts that are often cleverly designed to bypass the very state laws and legal protections that have been set up to protect themselves.


So who gets to certify the franchisor as competent? Do you have criteria?