The Franchisee Bill of Rights-What’s Next?

by Ed Teixeira

The Council of Franchisee Associations represents over 15,000 franchisees through its various franchisee association members. Recently it proposed a Franchisee Bill of Rights. Read why this action could lead to greater changes in franchisee-franchisors relations.

Recently, steps were taken by the Council of Franchisee Associations to formulate and ratify a Universal Franchisee Bill of Rights. The CFA membership includes some of the largest franchisee associations in the industry and as such has considerable clout.

Jin Coen and CK Patel, co-chairs of the CFA describe this effort and requested input in a current article in Blue Mau Mau:

”The intent of the Universal Franchisee Bill of Rights is to identify a fairness doctrine to evaluate whether that particular franchise agreement and/or franchise system provides adequate protection for franchisees to build, harvest and perpetuate their equity in the franchise system. Over the past 2 decades franchise agreements have become increasingly one sided, in order for franchisees to perpetuate their income and protect their investment they have had to sign agreements that eroded much of their rights as independent business owners.”

The article includes a link to a survey that cites the individual citations in the proposed Franchisee Bill of Rights. Some of these individual items represent covenants that have been and continue to be negotiated out of or amended in various franchise agreements. I admit, that there are a few items, I couldn’t agree with from a franchisor standpoint.

Given the size and composition of the CFA, I would give this effort a good chance to succeed. However, the larger story may not be this particular issue but rather, that the CFA could succeed where other national franchisee associations have fallen short. This group is well organized and represented by savvy and practical leadership. If there is the will on the part of the CFA look for legislative efforts to follow.

For someone who has been in the franchise industry for a number of years the formation of the CFA and their latest action is not surprising. After reading some comments regarding the evolution of franchise agreements, I pulled out a copy of the 1984 UFOC for a 400 unit franchisor I worked for as Senior V.P. The franchise agreement was 15 pages long, which included a one page personal guaranty that the franchise owner would sign. We were a publically traded company and the majority of franchisees were very profitable.

Now 27 years later, when one considers the size and scope of current franchise agreements with its ancillary agreements, it’s not unreasonable to ask if the pendulum has swung too far in favor of the franchisor. On the other hand, the disclosures in today’s FDD dwarf the amount of information that was provided years ago.

There are a number of reasons why the CFA could lead to a fundamental change in franchisor-franchisee relations:

• The size of the CFA provides the organization potential lobbying power
• A number of the CFA member associations including KFC and Burger King have already litigated with their franchisor
• The ease of communicating and the ability to generate news can facilitate the growth and reach of the CFA
• As the franchise industry continues to grow this growth will serve as a feeder to individual associations and the CFA
• A large group of franchisees can provide financial resources

The proposed CFA Franchisee Bill of Rights has resulted in a limited amount of coverage since its publication; however the real story is yet to be written. Will this particular action lead to other changes? How will franchisors and the IFA respond on an individual and collective basis? These questions have yet to be answered.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com